sign in sign up
<<
Home , Factoring (finance)

A PUBLICATION OF THE INTERNATIONAL ASSOCIATION

DECEMBER 2020 | VOL 22 | No. 6 FACTORING OUTLOOK FOR 2021

ALSO INSIDE: WE HAVE

GONE DIGITAL! The Next Big Disruptors in Factoring Contact [email protected] How Factors Can Increase Sales by Resolving Payroll Tax Liability to update your email address and get ommercial Factor sent to your inbox. C Regulation of Commercial Finance Companies is Here and Intensifying

TABLE OF CONTENTS DECEMBER 2020 | VOL 22 | No.6

FROM IFA’S MANAGING DIRECTOR By Heather Villa

IN THE NEWS

2021 COMMERCIAL FACTOR OUTLOOK

HOW FACTORS CAN INCREASE SALES BY RESOLVING PAYROLL TAX LIABILITY By Elizabeth Nelson, Esq.

THE FUTURE OF FACTORING: IDENTIFYING THE TOP INDUSTRY TRENDS FOR 2021 By Steve McDonald

BUILD WITH BRICKS, NOT STICKS: HELPFUL PROVISIONS FOR FACTORING AGREEMENTS By Ross Angus Williams, Esq., and Scott R. Larson, Esq. COLUMNS

WHAT’S NEW AT IFA

LEGAL FACTOR REGULATION OF COMMERCIAL FINANCE COMPANIES IS HERE AND INTENSIFYING By Steven N. Kurtz, Esq.

ADVERTISER INDEX

1st Commercial ...... BC HubTran...... IFC Ansonia, an Equifax Company...... IBC IFA...... 7, 8, 15, 18 Commercial Factor Website...... 9 Mmedia...... 11 FactorFox...... 5

The Commercial Factor | December 2020 1 FROM THE MANAGING DIRECTOR

BY HEATHER VILLA

As 2020 comes to an end, it seems impossible to encapsulate this year into one word. Although 2020 can probably bring forth many negative connotations to most people, the word that I choose is innovate.

There have been many challenges this year, but 2020 Palmer Hamilton, a partner and lobbyist at Jones Walker has allowed us to open our minds to possibilities that (New and Proposed Legislation and its Impact on Factors). we didn’t know existed before. We have been able to Whether in person or virtual, you won’t want to miss this innovate new ideas and new approaches to overcome important meeting if you are a senior executive or owner challenges, obstacles, hardship and adversity, instead of of an IFA member . Please go to our website being defeated by them. The reason why innovate is my for more information on this meeting and all upcoming word of the year is because it is a word that will carry us events. forward into 2021 and beyond. We are now actively planning a hybrid format for the Technology has rapidly accelerated and opened the IFA Annual Conference as well. The event will take place door to exciting innovations for the commercial finance May 12 to May 15 in Palm Desert, CA. While virtual events industry. The IFA has conducted more than 30 webi- certainly have their benefits, peer-to-peer networking at nars and online training classes this year, allowing the live events will always be a valuable part of our industry, community to stay informed and connected during this so it is important for us to continue to offer that experi- turbulent time. New ideas are implemented weekly as we ence while making sure attendees are comfortable in a stay at the forefront of timely issues important to helping large group setting. Strategic planning and coordination factoring companies thrive and succeed. We offered are underway for the 2021 live event, which also will offer our first hybrid training class in October, which further online attendees a rich digital experience by synchro- opened the way to more opportunities, including a new nizing the benefits of an in-person conference. For more range of attendees from all over the globe. information, go to factoringconference.com. Registration Our Presidents and Senior Executives Meeting in will be open soon! January will be a hybrid roundtable meeting, allowing The American Factoring Association also has innovated both in-person and virtual attendees to come together this year by offering monthly newsletters and bi-monthly as a group. Educational roundtable discussions and webinars to keep members informed. During these networking opportunities will take place between times, it is more important than ever to establish and both groups as technology seamlessly integrates strengthen meaningful relationships in Washington in participation between a live and virtual audience. Guest order to protect the factoring industry. If you missed any speakers for this meeting include Neal Umphress, a of the previous webinars, go to americanfactoring.org to supervisory special agent from the FBI (Reporting Fraud download them. and Recovering Losses), Joseph Amato, the Nevada 2020 has been a year of challenges and change, but District director from the Small Administration with innovation we can bring optimism, growth and new (Obtaining Subordinations and Working with the SBA), possibilities in 2021. I look forward to seeing you at one of Mack Jackson, a cybersecurity awareness speaker our events soon, whether in person or virtually. (Protecting your Company Against Cybercrime) and

2 The Commercial Factor | December 2020 NEWS

THE INTERNATIONAL FACTORING ASSOCIATION PEOPLE 6627 Bay Laurel Place, Ste C CapitalPlus Hires Deegan as Director of Human Avila Beach, CA 93424 Resources MAILING: PO Box 39 Avila Beach, CA 93424-0039 CapitalPlus Construction Services hired Clare J. Deegan as direc- 805-773-0011 tor of and business office manager. Before joining CapitalPlus, Deegan worked in both small and large EXECUTIVE DIRECTOR Bert Goldberg hospitality environments, leading HR, and office efforts. PUBLISHED BY The International Factoring Association Crestmark Equipment Finance Adds Jenkins as EXECUTIVE EDITORS National Account Executive Lisa Rafter [email protected] Crestmark appointed James Jenkins national account executive 610-213-9105 for the Crestmark Equipment Finance group. Jenkins has nearly Rita Garwood 40 years of equipment financing experience and most recently [email protected] served as senior vice president, director of vendor and head of 484-253-2505 commercial direct with BCI Capital. MANAGING EDITOR Phil Neuffer Binns Joins Tradewind as VP of Sales, Europe [email protected] Tradewind Finance appointed Derek Binns vice president of sales 484-253-2504 in Europe. Previously, Binns managed parts of the Otto Group, ADVERTISING SALES including its e-commerce services company, Zitra GmbH. Binns Laura Backe also served as an e-commerce specialist and international [email protected] advisor to the UK Government Department of International 484-253-2511 Trade and held executive positions at Stenn International and Primadollar. Chris Abel Axiom Appoints Karas EVP of Allied Affiliated Funding iThrive Funding, LLC, Roy, UT Axiom appointed Dan Karas executive vice president of Bud Crawford Allied Affiliated Funding, the bank’s factoring and -based Coeur Capital, LLC, Atlanta, GA lending division. Karas’ commercial lending experience spans John Cummings nearly four decades with national and regional , including ACS Factors, Upland, CA his most recent role at a Dallas-based community bank. Tania Daniel ENGS Commercial Capital, Birmingham, AL Taulia Appoints Lee Director of Dean Landis Taulia, a technology solutions provider, appoint- Entrepreneur Growth Capital, New York, NY ed Andy Lee director of supply chain finance. Prior to joining Tau- Meg Roberson lia, Lee spent eight years at HSBC, with a focus on open account Gulf Coast Business Credit, Austin, TX and fintech development. Glen Shu Heritage Bank of Commerce Specialty Finance Group, San Jose, CA eCapital Names Sheppard Chief Operating Officer Gerry Wawzonek eCapital named Charles Sheppard, formerly president of the Capital Now, Calgary, AB, Canada company’s freight factoring division, chief operating officer. In this new role, Sheppard will oversee both the eCapital freight The International Factoring Association’s (IFA) goal is to assist factoring and eCapital commercial finance divisions and lead the the factoring community by providing information, training, pur- newly formed corporate-level marketing and IT departments. chasing power and a resource for factors. The IFA provides a way for commercial factors to get together and discuss a variety of issues and concerns about the industry. Membership is open to BFC Names Jacobs Senior Marketing and all banks and finance companies that perform financing through the purchase of or other types of . Development Director The Commercial Factor is published bi-monthly by the Interna- Business Finance Corporation (BFC) named Jeff Jacobs senior tional Factoring Association. To subscribe, please email marketing and development director. Jacobs joined BFC with 35 [email protected]. years of factoring and receivable financing experience. The Commercial Factor magazine invites the submission of articles and news of to the factoring industry. For more information on submitting articles or advertisements, email [email protected], or call 805-773-0011. The views expressed in the Commercial Factor are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association. The Commercial Factor | December 2020 3 ship manager team lead. John Kolb Rosenthal & Rosenthal Appoints joined as vice president and relation- Rogers VP, Senior Underwriter NEWS ship manager. in Atlanta Rosenthal & Rosenthal appointed eCapital Promotes Howard SoCAL CHAPTER Dan Rogers vice president and senior to Chief Credit and Portfolio underwriter in the company’s Atlanta EVENTS 2021 Officer office. A commercial lending profes- eCapital named Tony Howard chief sional with nearly 30 years of experi- TBA credit and portfolio officer. Howard ence, Rogers most recently served as For more information on joining was formerly chief credit officer of the vice president and senior underwriter the SoCal Chapter, contact: company. Before eCapital, Howard at AloStar Capital Finance (now known John Cummings, Chapter served as managing director of CBIZ, as Cadence Business Finance). President, at cummings.john@ managing director at Pricewater- acsfactors.com. houseCoopers and director with Church Joins Seacoast Business KPMG’s group in Funding as VP, BDO Atlanta. Seacoast Business Funding added MIDWEST CHAPTER John Church as vice president and Sterling Commercial Credit EVENTS 2021 business development officer. Church Hires Gill as Senior VP of Sales is based on the West Coast and has Sterling Commercial Credit hired Eric more than 20 years of experience January 21 Gill as senior vice president of sales lo- solving financial challenges for busi- Webinar cated in Charlotte, NC. Gill joined with nesses within the alternative lending 2pm-3pm EDT more than 30 years of experience, space. Topic: Broker and Consultant having served as a business develop- Arrangement Best Practices ment officer, chief credit officer, rela- Ahmad Joins eCapital as Free for IFA Midwest Chapter tionship manager, credit underwriter EVP, Chief Credit Officer of Members, $25 for Non-Members and senior regional field examiner. Commercial Finance eCapital named Kash Ahmad execu- For more information on joining North Mill Equipment Finance tive vice president and chief credit the Midwest Chapter, contact: Appoints Five New Employees officer of its commercial finance divi- Robert Meyers, Chapter President, North Mill Equipment Finance ap- sion. Prior to taking this role, Ahmad at [email protected]. pointed Jeffrey T. Schick operational served as managing director for Bibby controller. The company also hired Financial Services Canada and UK Elizabeth Arias-Hernandez as port- specialist director responsible for Siska Joins Sterling Commercial folio manager, Kimberly Merryfield the trade finance, export finance, Credit as Managing Partner as account manager, Yocasta Olivo as construction finance and recruitment Thomas G. Siska joined Sterling Com- title and insurance administrator and finance divisions. mercial Credit as a managing part- Maya Samad as sales and marketing ner. He will initially be charged with assistant. building Sterling’s national origination DEALS platform. Siska has previously initiated Iron Horse Credit Hires Savi Rosenthal Provides $35MM four different startups and orches- Hussain as SVP of Underwriting Across Two Factoring Deals trated three turnarounds. Iron Horse Credit hired Savi Hussain as Rosenthal & Rosenthal completed senior vice president of underwriting. Huntington Business Credit two separate factoring deals out of its Hussain has more than 25 years of ABL Southeast office totaling $35 million. Opens West Coast ABL Offices, experience and will be responsible for The first deal was with a designer of Adds New Team Members the company’s credit and underwriting handbags and accessories that lost Huntington Business Credit opened operations. coverage on some of its custom- three new asset-based lending offices er accounts due to COVID-19-related in Los Angeles, San Francisco and Shah Joins LSQ as EVP, Supply challenges. The second deal was with Portland, OR. The company also hired Chain Finance a manufacturer of textiles and bedding Tab French, Robert Alexander, Martin Vikas Shah joined LSQ as executive that was looking to establish a U.S. Valencia, David Lehner and John vice president of supply chain finance, entity to sell to retailers. Kolb. French joined HBC as senior leading the development of the com- vice president, managing director pany’s supply chain finance platform, Versant Funds $1.5MM and west business development team LSQ FastTrack. Shah has more than Factoring Facility for CBD Body lead. Alexander and Valencia joined 15 years of experience in the procure- Care Distributor as senior vice presidents and business ment and supply chain space. He Versant Funding funded a $1.5 million development officers. Lehner joined joined LSQ from Xeeva. non-recourse factoring facility for a na- as senior vice president and relation-

4 The Commercial Factor | December 2020

NEWS tional distributor of CBD-infused body care products. IFA CALENDAR OF NORTHEAST CHAPTER EVENTS 2021 EVENTS 2021 Commercial Funding Completes First ABL January 6 Transaction at $3.5MM January 13 Virtual Happy Hour Commercial Funding completed its Factoring Government 4pm-5pm EDT first asset-based lending transaction Receivables at $3.5 million for a transportation Webinar 11am-12pm PST January 19 company. Webinar January 28-29 InterNex Capital Provides 10am-11am EDT 2021 Presidents & Senior Topic TBA $6MM LOC to Technology Executives Hybrid Meeting Company Waldorf Astoria February 3 InterNex Capital provided a $6 mil- Las Vegas, NV Virtual Happy Hour lion line of credit to a technology 4pm-5pm EDT payments company in the financial February 24 services industry. InterNex delivered Debtor Credit Insights & February 16 the $6 million LOC with an ongoing Innovations From Trusted Webinar stretch facility up to $1 million. Industry Experts 10am-11am EDT Webinar 11am-12pm PST TradeCap Commits $18MM All events: Free for IFA Northeast to Government Contractors March 9 Chapter Members, $25 for Non- Joint Factoring Meeting with the Members Selling PPE TradeCap Partners closed two PO NYIC & IFA NE Chapter For more information, call Harvey finance facilities totaling $18 million Webinar Time TBA Gross at (732) 672-8410 or e-mail for two government contractors sell- See IFA’s full calendar on page 15. [email protected] ing personal protective equipment, or visit www.ifanortheast.org including a women-owned business Registration Information: with experience in sourcing PPE and a www.factoring.org team of veterans with disabilities with SOUTHEAST CHAPTER a strong logistics background. EVENTS 2021 CANADA CHAPTER Capital Now Funds More Than EVENTS 2021 January 14 $1.1MM to Canadian Hydrovac & Virtual Happy Hour Groundwork Company 2021 Dates TBA 4pm-5pm EDT Capital Now funded $1,107,423 to a Webinar Topics: January 21 hydrovac and groundwork company in Canada. January - Legal Issues: Update Webinar from the Courts 2pm-3pm EDT Express Closes $3MM Factoring February - Economic Outlook: Topic: Broker and Consultant Facility for Skin & Hair Care Arrangement Best Practices Forecast for 2021 Company March - Transportation Issues Express Trade Capital closed a $3 mil- February 11 April - Factoring Fraud Virtual Happy Hour lion factoring facility to support the in- creased sales and production required May - Managing Clients during COVID 4pm-5pm EDT for a sustainable, women-owned and June - Underwriting New Clients: February 25 natural skin and hair care brand based What to watch for? Webinar out of Frisco, TX. July - Sales Strategies: How to 2pm-3pm EDT become an efficient BDO Siena Completes $55MM in Topic TBA August - Summer Golf Gathering New Facilities September - Factoring vs MCA’s All events: Free for IFA Southeast Siena Lending Group completed Chapter Members, $25 for Non- five new facilities with an aggregate For more information, call Members amount of $55 million in California, Oscar Rombolà at (905) 603-6284 For more information, call Harvey Florida, Illinois, Maryland and Wash- or email ington. Gross at (732) 672-8410 or e-mail [email protected]. [email protected] Visit IFA Canada’s website at or visit www.ifasoutheast.org www.FactoringAssociationCanada.com.

6 The Commercial Factor | December 2020 “THE MUST ATTEND EVENT OF THE YEAR!” For Anyone Involved with the Factoring & Asset Based Lending Industries

SAVE THE DAT E!

May 12-15

WORLD’S LARGEST CONFERENCE FOR THE COMMERCIAL FINANCE INDUSTRY

Over 60 Speakers

Exhibit Hall with Over 50 Vendors Hospitality Suites & Closing Event The IFA conference is my favorite industry Activities including related event. Golf & Food Tour

ATTEND IN-PERSON OR VIRTUALLY! INTERNATIONAL mail: P.O. BOX 39, 805-773-0011 FACTORING AVILA BEACH, CA 93424-0039 ASSOCIATION 6627 BAY LAUREL PL., STE. C, factoringconference.com factoring.org AVILA BEACH, CA 93424

The International Factoring Association is registered with the National Association of State The IFA offers CLE This conference has been Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the for the Factoring Conference. approved for CAEF credits. National Registry of CPE Sponsors. State boards of accountancy have final authority on the Visit [email protected] for For information on approved acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be Information on approved states or contact the IFA programs & courses, please submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org. at 805-773-0011. contact the IFA. NEWS

King Trade Capital Delivers InterNex Capital Provides North Mill Delivers $20MM $4.5MM Supply Chain Finance $2MM Velocity LOC to Florida- AR Facility to Reliable Tire Facility for PPE Distributor Based Food Manufacturer Distributors King Trade Capital completed a $4.5 InterNex Capital provided a $2 million North Mill Capital provided a $20 million purchase order-based supply Velocity line of credit and a $550,000 million accounts receivable and chain finance facility for a New York- stretch facility to a Florida-based inventory credit facility to Reliable based personal protective equipment food manufacturer that sells low Tire Distributors, a wholesale tire distributor importing medical gowns carb, ready-to-eat foods through U.S. distributor headquartered in Black- to be delivered to the U.S. govern- distributors and directly to consumers wood, NJ. ment. online. FSW Funding Provides $5MM to West Coast Staffing Company FSW Funding provided a $5 million think you know your stuff? credit line (along with an accordion feature) to a California-based staffing company that was having issues with Prove it! its current lender. Certified ACCount exeCutive in fACtoring Iron Horse and Alterna Provide $5.5MM of Working You are eligible to sit for the Certified Account Capital to Women’s Footwear executive in Factoring exam if you have been Manufacturer involved in Factoring for at least two years and Iron Horse Credit provided a $3 mil- lion stand-alone inventory revolving you are or have been in an line of credit and Alterna Capital Account Executive role, or you Solutions provided a $2.5 million have managed such a accounts receivable-based facility position. to a manufacturer and importer of women’s footwear.

tHe ProCeSS iS eASY... Huntington Business Credit Any qualified candidate can sign-up, there is no need Delivers $23MM Facility to for employer sponsorship. Qualified candidates can Paragon Steel Enterprises Huntington Business Credit provided schedule the exam at a supervised testing center Paragon Steel Enterprises with $23 in a nearby city and will take a 100 item, multiple million in credit facilities. choice exam. Celtic Capital Provides ProudLY diSPLAY tHe CAeF deSignAtion $2.5MM to California- Do Based Industrial Ceiling Fan The exam was not designed to you Manufacturer be easy; many candidates or your Celtic Capital provided $2.5 million report that taking the exam employees accounts receivable and inventory lines of credit to a California-based took every bit of the two possess the manufacturer of high-volume, low- hours allotted and not everyone who takes the knowledge speed industrial ceiling fans. exam will achieve this prestigious credential. base to become CapitalPlus Funds $2.3MM in Certified? Candidates who pass the exam can proudly display October their CAEF designation by using the Join The Growing In October, CapitalPlus Construction Services, a provider of accounts re- CAEF logo and C.A.E.F. initials to Ranks of CAEF’s ceivable financing for the construc- show the world they are proficient and Sign-up Today! tion industry, completed $2.3 million in the field of Factoring. in transactions. visit www.factoring.org for more information or call 805-773-0011

8 The Commercial Factor | December 2020 J D Factors Provides $4.225MM million factoring facility to a South- distributor of footwear for men and in Recent Factoring Facilities east-based company that focuses on women that recently expanded into J D Factors provided $4.225 million in the manufacturing and assembly of fashionable gloves and some dispos- recent factoring facilities to transpor- corrugated retail displays. able gloves used as personal protec- tation, manufacturing, telecommuni- tive equipment. cations and wholesale companies. CoreFund Capital Provides $25MM Credit Facility for Republic Provides $3.7MM Entrepreneur Growth Capital International Freight Forwarder Credit Facility for Plastics Delivers $5MM Facility for NY CoreFund Capital facilitated an Manufacturer PPE Distributor increase to the credit facility for a Republic Business Credit provided a Entrepreneur Growth Capital deliv- global logistics and freight forwarding Midwest-based, privately-owned plas- ered a $5 million working capital facil- company. tics manufacturer with a $3.7 million ity to a New York-based distributor of line of credit. personal protective equipment. eCapital Supplies $5MM Factoring Facility to Beverage Express Trade Capital Closes Amerisource Closes $3MM Distributor $6MM Factoring Facility for Credit Facility for Membrane eCapital provided a $5 million factor- Menswear Importer Manufacturer ing facility to an importer and distribu- Express Trade Capital provided a $6 Amerisource Business Capital closed tor of wine and spirits. million factoring facility for an im- and funded a $3 million credit facil- porter of menswear. ity for a Texas-based fabricator of Republic Provides $2.5MM membranes used in water treatment Factoring Facility for LA-Based Loeb Leverages More Than facilities. Apparel Importer $12MM in Equipment to Republic Business Credit provided a Finance Seven New Clients Prestige Delivers $5MM $2.5 million factoring facility to a Los Loeb financed more than $12 million Factoring Facility to Retail Angeles-based apparel manufacturer in equipment to seven new clients, Display Manufacturer and importer to support its holiday including $4 million to a Canadian Prestige Capital Finance delivered a $5 season orders. The company is a construction company.

The Commercial Factor | December 2020 9 NEWS Gibraltar Provides $130.5MM TAB Bank Opens Small Ticket in New Commitments During Accounts Receivable Financing Encina Provides $80MM COVID-19 Pandemic Office in Texas Revolver for Gibraltar Business Capital closed 12 TAB Bank opened a small ticket ac- Services Provider transactions and $130.5 million in new counts receivable financing office in Encina Business Credit provided an commitments in the nine months after Plano, TX, with a team of 22 commer- $80 million senior secured revolving COVID-19 was declared a pandemic. cial finance professionals. The office credit facility to a global provider of will provide for all commercial indus- business process services. INDUSTRY NEWS tries except medical and construction. Espresso Capital Extends Ares Provides Financing IFA Accepts Haversine Funding $7.5MM Credit Facility to Zype for eCapital’s Acquisition and FactorCloud as Preferred Espresso Capital provided Zype, a of Advantedge Commercial Vendors video content management and distri- Finance The International Factoring Associa- bution software company, with a $7.5 Credit funds managed by Ares Man- tion accepted Haversine Funding and million credit facility. agement provided eCapital with fi- FactorCloud into its preferred vendor program. Approved vendors undergo HSB Funding Closes $1MM nancing for the company’s acquisition of Advantedge Commercial Finance, a thorough screening process before Credit Facility for Wholesale a UK-based, privately-owned being selected and are subject to Seafood Distributor financing company. ongoing monitoring. Both will offer an HSB Funding, a division of Heritage exclusive benefit available only to IFA Southeast Bank, closed and funded a HubTran Launches Invoice members. $1 million credit facility for a firm that Intelligence for Factors Gerber Finance Launches provides seafood products to grocery HubTran launched Invoice Intelli- chains through the Southeast U.S. gence, its newest product for fac- Division to Provide ‘Larger tors. This product was designed to Amounts of Funding’ White Oak Provides $1.5MM eliminate errors and fraud, allowing Gerber Finance launched Gerber+ to Factoring Facility to Service- factors to get paid faster and more expand its portfolio services. While Disabled Veteran-Owned completely. Gerber Finance currently focuses on Business facilities up to $10 million, the new White Oak Commercial Finance’s gov- HPD Partners with Emirates division will service seek- ernment contracting finance arm pro- Development Bank to Launch ing funding ranging from $10 million to vided a $1.5 million factoring facility to Supply Chain Finance Platform $25 million. a service-disabled veteran-owned 8(a) HPD LendScape partnered with Emir- Factoring Scheme Allegedly company that provides operational ates Development Bank to launch and technical engineering support to the UAE’s National Supply Chain Costs San Antonio Area Banks the U.S. Army Cyber Command. Finance platform (SCF), providing UAE More Than $13MM businesses access to working capital According to the U.S. Attorney’s Office Sallyport Commercial Finance as they cope with pressures of the for the Western District of Texas, an Provides $5MM Credit Facility COVID-19 pandemic. indictment was filed on Nov. 10 that for Apparel Company charged five individuals from San Sallyport Commercial Finance Encina Launches Lender Antonio with defrauding Southwest provided a $5 million credit facility Finance Platform, Graham & Bank, the Bank of San Antonio and to an apparel company that suffered Thomas to Lead TransPecos Bank out of more than $13 when major retailers began to cancel Encina Capital Partners and an affiliate million by submitting fake invoices orders amidst the ongoing COVID-19 of certain funds managed by Oaktree that were factored by the banks. pandemic. Capital Management launched Encina Crestmark Provides More Lender Finance (ELF), a new indepen- TAB Bank Provides $8MM dent lender finance platform targeting Than $23.1MM in Commercial Revolving Credit Facility to commercial and consumer specialty Financing in H1/Nov Brokerage Firm finance companies in the U.S. and Can- Crestmark secured a total of $6.05 TAB Bank provided an $8 million ada. ELF will be led by Luke Graham million in ABL financial solutions for asset-based revolving credit facility for (CEO) and John Thomas (president five new clients, Crestmark Equip- a commodity brokerage firm based in and chief risk officer). In addition, Alex ment Finance provided $4,371,057 Texas. Knowland was named vice president in three new lease transactions and of capital markets and client services. Crestmark’s government guaranteed Janet Riccard joined the firm as direc- lending group provided $12.722 million tor of operations. in financing for three new clients in the first half of November. •

10 The Commercial Factor | December 2020

FEATURE DECEMBER 2020

2021 Commercial Factor Outlook As factors close the book on a year mired by the COVID-19 pandemic and get ready for 2021, Commercial Factor reached out to industry leaders from across the United States to take stock of current market conditions and predict what could be the next big disruptor for the industry.

12 The Commercial Factor | December 2020 were seriously hurt due to COVID, that being said, the cautious part which means less predatory and of being optimistic is that we must destructive lending. Also, in the continue keeping a watchful eye on Robyn Barrett Managing Member first half of 2021, banks will be our portfolios, with even more focus FSW Funding re-evaluating their portfolio[s] and on credit quality. will be eager to shed under- and What is one change adopted by non-performing . Factors are the factoring industry in 2020 in a good position to pick up this that you believe will become a business from banks. Bonnie Castillo fixture going forward? President CASTILLO: Anxious. Everyone BARRETT: Working remotely. CoreFund Capital knows there is no playbook for what Whether you like it or not, this can of has occurred this year and how to worms has been opened up. Factors prepare for 2021. The ripple effect are flexible in nature and were able and impact of the shutdown of many Dean Landis to move to a remote workplace with President businesses due to the pandemic little pain. I think going forward we Entrepreneur Growth is still making its way through our all will be providing some mix of Capital economy. Our factoring business in-person and remote working — it is is focused on the transportation inevitable. and oilfield market. Transportation Glen Shu will continue to be a necessity. CASTILLO: Embracing more tech- President nology and automation. I have heard Specialty Finance Group The concern is the survival of the personally from prospects that have Heritage Bank of account debtors and the potential Commerce of seeing more . The had the unfortunate experience oilfield is of course on the bubble of being with a factor that was not during this. On the upside, there prepared to pivot their business so are many factoring shops that have quickly to maintain continuity. There is no arguing that the been able to adapt to the situation at COVID-19 pandemic was the biggest LANDIS: Working remotely hand by embracing more technology disruptor of 2020 for the factoring worked far better than I expected. to maintain a continuity within their industry and the world at large. The We learned to adapt quickly and organization with no interruption of pandemic has stretched through successfully, something that I don’t service to their clients. I think that most of the year and although think our industry has been known will continue to be a requirement for the recent approval of a vaccine for. We will take these lessons to factors moving forward. provides some optimism, the fallout heart. The one area that I have will carry into 2021 and beyond. LANDIS: The industry is surprisingly renewed appreciation for is the healthy. It appears that we all weath- value of relationships. Inasmuch To get a better handle on where the ered the storm about the same: the as we all learned to work in new factoring market currently stands initial shock and “all hands on deck” ways, it was much more difficult to and where it will go in 2021, Robyn spirit, the unprecedented drop in create new relationships. This put a Barrett, managing member of FSW outstandings, followed by a gradual premium on all existing relationships Funding; Bonnie Castillo, president increase to levels pre-pandemic. We between colleagues, clients, funding of CoreFund Capital; Dean Landis, currently see as much competition sources, referral sources, etc. president of Entrepreneur Growth as ever, although it is from existing Capital; and Glen Shu, president SHU: Increased use of technology players; new entrants seem to be of the specialty finance group at and the virtualization of our quote- attracted more to ABL not factoring. Heritage Bank of Commerce/Bay unquote back offices. I’ve always View Funding share their insights SHU: I would describe the state of been a believer that the portfolio in an exclusive Q&A for Commercial the factoring industry for 2021 as and credit side of the business Factor. being cautiously optimistic. I think should be all under one roof because there will be new business opportu- there we can leverage synergies and How would you describe the state nities for factors and other specialty promote ongoing staff education. of the factoring industry entering finance companies that will be Now, with that being said, COVID 2021? driven by demand from businesses has forced the world to figure out BARRETT: The factoring industry who have survived the pandemic, how to work remotely. We learned is set to have its best life ever. and in some cases, actually thrived quickly that you can still perform Merchant advance lenders from newfound opportunities. But transactions, service clients and

The Commercial Factor | December 2020 13 FEATURE DECEMBER 2020

do everything you normally do in out and then who files continues to be somewhat chal- the office from remote locations. in the first quarter of 2021. One lenged, enough that many of the We’ll continue [to] see businesses thing is for sure, the competitive bankruptcy alerts we see are related having less people in the office and landscape in terms of retail and to this industry. As the country more people working from home or wholesale will be much smaller. Oil reopens and businesses begin wherever they choose to. and gas will also continue to suffer seeing more normal operations, we COVID-19 was a disruptor very due to COVID-19 uncertainty and should see recoveries in industries few could have predicted before under the new president-elect, who such as manufacturing, wholesale 2020. What do you think will be is climate-conscious. The winners and distribution. the biggest disruptor of 2021 for will be staffing, healthcare and What are your overall expecta- the factoring industry? construction. tions for the industry in 2021? BARRETT: The constant threat of CASTILLO: Fortunately for us, the BARRETT: It is a mixed bag another virus such as COVID-19. trucking industry will continue to depending on when the vaccines This virus shook the entire world exist and quite possibly continue to are distributed and how fast people and brought the U.S. to its knees. thrive into the first quarter, which will get them. The economy won’t All factors are looking for prospects historically is the slow season. Last start a real recovery until people are that will thrive in our new normal — mile delivery in the transporta- spending , employed and can online commerce, healthcare, PPE tion industry will continue to grow travel. as consumers have now become and government contracts. The CASTILLO: I’m trying not to set too other threat is regulation, but this accustomed to more on-demand online ordering options. I’m hoping many expectations at this point. Our will be tempered if the Republicans focus is on continuing to grow our can hold the Senate. that there is not more government interference or restrictions placed portfolio wisely (we grew substan- CASTILLO: I think we risk seeing on carriers. I think brick and mortar tially during the pandemic), manage more unfriendly legislation toward retail will continue to suffer if they our risk and be prepared and nimble factors and higher interest rates. are unable to expand online options. enough to adapt to any additional This could impact many factors that disruptors. LANDIS: I imagine a broad recovery, have competed to be the lowest rate LANDIS: Barring anything apoca- provider who will either not survive except for businesses that require the in-person experience: hospi- lyptic, we are hopeful for a robust or lose much of their portfolio over 2021. I think we all can’t wait to rate increases to current clients. tably, travel, certain retail and restaurants. Trillions of additional return to normal and enjoy all the LANDIS: Fears of any sort of stimulus and a large infrastructure in-person contact that we may have cybercrime still keep me up at night. bill could be great for basic industry taken for granted. One item to note We still need to watch closely the and the building . is that a lot of factors benefitted fintech players that encroach on the from the reduction in the MCA factoring space and on attempts to SHU: It’s probably easier to talk industry. My guess is that they come increase regulation. about those that I think will continue back as before. to struggle versus those that will SHU: COVID may continue to be a recover. Brick and mortar retail SHU: I believe 2021 should provide disruptor in 2021. There could be is going to continue struggling, plenty of new business oppor- potential problems with distribution although it had been before the tunities for the specialty finance of the vaccine, which could in turn pandemic but then got worse. industry, which in turn should cause further delays in progress with I believe the energy sector will support moderate growth within moving the country forward and continue to face challenges. On our portfolios. I also think that slowing economic recovery. a daily basis, we closely monitor there’s going to be an increase in the Which sectors do you expect to corporate bankruptcies for purposes activity for recover or continue to recover of maintaining credit quality. Over those companies looking to expand in 2021 and which ones do you the years, we have pulled back some beyond organic means. • expect to continue to struggle? from the energy sector, especially when we saw the significant declines BARRETT: Apparel will continue in the price of oil. But clearly through to struggle for a while. We shall the pandemic, the energy sector see how the holiday season plays

14 The Commercial Factor | December 2020 TRAINING COURSES LEAD GENERATION DISCOUNTED PRODUCTS ANNUAL CONFERENCE www.factorsearch.com DISCUSSION GROUPS The World’s Largest Association FACTORING SURVEY AMICUS BRIEF PROGRAM AND LEGAL FORMS SOCIAL MEDIA COMMUNITY for the Factoring Industry AE CERTIFICATION PROGRAM MENTOR PROGRAM MEETINGS, FORUMS & MORE UPCOMING EVENTS

TRAINING COURSES & EDUCATIONAL MEETINGS FOR THE RECEIVABLE FINANCE INDUSTRY Jan 13 Factoring Government Receivables Webinar, 11am - 12pm PST Jan 28 - 29 2021 Presidents & Senior Executives Hybrid Meeting Waldorf Astoria, Las Vegas, NV Debtor Credit Insights & Innovations Feb 24 Webinar, 11am - 12pm PST From Trusted Industry Experts Mar 9 Joint Factoring Meeting w/ the NYIC & IFA NE Chapter Webinar, Time TBA JW Marriott Desert Springs, May 12 - 15 2021 Hybrid Annual Factoring Conference Palm Desert, CA

Sep 16 - 17 Marriott Omaha Downtown, Annual Transportation Meeting Omaha, NE

REGISTRATION www.factoring.org Cancellation Policy: Due to the ongoing uncertainty regarding COVID-19, the IFA will not charge a cancellation fee if you decide to not attend an in-person event These training courses are INFORMATION 805-773-0011 [email protected] based on concerns around your health or travel. For information on policies with approved for CAEF credits. For online events, please refer to specific program registration pages or contact the more information contact Terri International Factoring Association, P.O. Box 39, Avila Beach, CA 93424-0039 IFA with inquiries. Baker at 805-773-0011, ext. 303.

The IFA will assist with applications to receive continuing legal education. To receive CLE The IFA is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of credits, participants will need to submit all documentation to their accrediting states continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have for approval. For more information, please contact Heather Villa at [email protected] final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may or 805-773-0011 ext 301. be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org. FEATURE DECEMBER 2020

How Factors Can Increase Sales by Resolving Payroll Tax Liability Business development has become difficult enough in the COVID-19 environment without having to drop clients with potential payroll tax liability issues. Elizabeth Nelson walks through potential solutions so that factors can save and retain clients experiencing such difficulties.

BY ELIZABETH NELSON, ESQ.

The COVID-19 pandemic increased CONSEQUENCES OF FAILURE such as construction, oil and gas, payroll tax delinquencies with TO DEPOSIT, FILE AND PAY pipeline and transportation. When resulting tax . Further, the IRS PAYROLL TAXES the contractor stops payments expects more delinquencies in Collection of payroll tax is vitally without cause, subcontractors are 2021 than in 2020. Concurrently, important to the functioning of usually contractually required to factoring companies are facing the United States government. finish a portion of the job, requiring challenges securing new clients. The IRS collects 95% to 96% of all continued of worker There are solutions for business the revenue for the United States. salaries. When that happens, any development officers who want Payroll tax comprises 72% of tax cash goes toward worker salaries to help companies quickly resolve collection. In 2019, payroll tax and the payroll tax is not deposited payroll tax liability and then convert accounted for $1.2 trillion in revenue and returns are not filed. This results those companies into clients. These from 31.6 million filed returns. As in delinquent payroll tax liabilities, solutions require a BDO to get more a result, payroll tax delinquencies which are not the fault of the involved with companies to save are the IRS’ highest enforcement company. or acquire new clients. This article priority, with increased unan- The penalties and interest for late discusses the pitfalls of payroll tax nounced revenue officer visits and payroll tax deposits, late filing liability and resulting tax liens and asset seizures. returns and late payment of payroll provides strategies to settle them. Companies that need factoring are tax can total up to an additional 65% usually subcontractors for industries of the total tax due. In 2019, the IRS

16 The Commercial Factor | December 2020 issued approximately 5 million civil the is filed, the lien statute business owner does not know the penalties on employers who failed includes a statutory safe harbor, IRS rules, settlement options and to pay employment taxes, with $13.7 which allows a factor’s UCC to retain pre-seizure time deadlines. They do billion in additional assessments. priority with respect to accounts not have access to the IRS attorney Paying employment taxes is inevi- receivable disbursements during hotline. Failure to know IRS rules table. A company withholds taxes the first 45 days following the filing can cause a company to lose , from employee pay and, thus, has a of the federal tax lien. The IRS has leaving nothing left to factor. fiduciary duty to transmit the money priority on all accounts receivable For a BDO who has expended time to the IRS. These taxes are called and cash that come into existence securing a company as a client, trust fund taxes and, by law, belong commencing on the 46th day. especially in the COVID-19 business to the government. There is one exception to this safe environment, time is of the essence, A particularly severe penalty (the harbor rule. The 45-day period is and a solution can be achieved trust fund recovery penalty) applies shortened to the date at which within seven to approximately to “responsible persons” of a the factor has actual knowledge of 30 days by working with a tax company. Responsible persons are such a lien filing. For example, if the professional. company officers, directors and/or factor has knowledge of the lien on Obtain an IRS Power of Attorney anyone who makes decisions about the 25th day, the safe harbor is only (POA) from the tax professional how to pay employees or has check- 25 days. Thus, the IRS has priority to stop unexpected visits from signing authority. A civil penalty of future advances made after the the IRS collection revenue officer equal to the full amount of the factor learns of the federal tax lien (RO). Why? Because the RO must unpaid trust fund tax, plus interest, filing. The IRS has the burden of contact the POA and ask permission can be assessed against the social showing that the lender had actual before visiting the company. When security number of any responsible knowledge of the tax lien filing. On the RO shows up unannounced, person. Hence, payroll tax becomes the date that the factor discovers they are looking for assets to seize. personal tax. that a federal tax lien has been filed, Additionally, this protects against a all advances should cease until the potentially unaware company repre- federal tax lien is subordinated. EXPLAINING TAX LIENS AND sentative providing information that THE 45-DAY SAFE HARBOR is not required. RULE CONVERTING COMPANIES WITH PAYROLL TAX ISSUES Continued on page 27 A federal tax lien is the government’s INTO CLIENTS legal claim against a company for failure to pay taxes. A federal tax lien Factor companies have different is filed after the IRS assesses the tax rules on settling tax liabilities prior liability and sends a bill that explains to funding. Some require only an Elizabeth Nelson, how much is due (Notice and installment agreement, while others Esq., has represented Demand for Payment). The IRS files require both an installment agree- businesses, factors/ IRS intervention and a federal tax lien after a company ment and an IRS lien subordination individuals with tax issues since fails to pay the tax within a certain to the UCC statement if a lien was filed. 2001. She has a master’s degree in time. The IRS also files a Notice of tax law from New York University Federal Tax lien within the county of A successful factor BDO must and is vice president and a board the location of the client’s business. be proactive in both assisting member of the SoCal Chapter of a company in securing factor the IFA, founder of EN Tax Law, was Factor companies require the past vice-chair of the American Bar filing of a UCC-1 statement prior to services and stopping IRS collec- tions. Experienced payroll tax Association, Tax Section, Individual funding a client. This UCC state- & Family Income Committee from ment protects a factor company’s professionals’ names and contact 2012 to 2014, and was appointed interest in the accounts receivable. information must be provided to to a judicial clerkship in the United What happens to the UCC statement the company unless one is already States Tax Court. She practices when the IRS files a federal tax lien? working with the company. Believing in the areas of tax controversy, that the company president can self- focusing on company payroll tax Ordinarily, pre-existing security solve its IRS problems is not realistic. issues, lien subordinations and , such as accounts receiv- They will not. They cannot. The IRS exempt before all levels of the IRS. She can be reached able, lose priority to the federal is the largest collection agency in tax lien. For accounts receivable, by phone at 310-892-0339 or by the U.S. and holds all the power and email at [email protected]. which come into existence after knowledge of the rules it requires. A

The Commercial Factor | December 2020 17 WHAT’S NEW AT IFA DECEMBER 2020

AFA Outlines Factoring Industry Problems and Solutions Entering 2021 BY ROBYN BARRETT AND COLE HARMONSON

As we wrap up a crazy 2020 and is on Jan. 5 and it is a total guess Act panel feedback on the CFPB head into 2021, the factoring as to who will win. We will have to implementation of Section 1071 industry still has many regulatory wait until then to get a better idea of the Dodd-Frank Act. Hamilton problems to tackle. of how the AFA will plan to continue reiterated the CFPB has properly lobbying efforts for the factoring interpreted Section 1071 and ECOA CONTROL OF THE SENATE industry. to not cover factoring transactions. The national elections were on Nov. The CFPB panel is preparing a report 3 and we are still not sure which DODD-FRANK ACT SECTION 1071 that examines the impact of the party will have control of the Senate The AFA, through its consultant, potential rule on small businesses. — it all comes down to Georgia. Palmer Hamilton of Jones Walker, The report, along with feedback Currently, the Democrats have 48 sent a letter on Nov. 17 to the received from small businesses, will seats and the Republicans have 50, Consumer Financial Protection be considered by the bureau in its with 51 needed for a majority. The Bureau regarding the Small Business rulemaking to implement Section Georgia runoff for two Senate seats Regulatory Enforcement Fairness 1071. With the very good possibility of a new director of the CFPB, this means factors are not out of the woods in terms of Section 1071, so the AFA will continue to lobby on behalf of the factoring industry on this matter.

MORE REGULATIONS California Governor Gavin Newsom approved Bill AB1864 on Sept. 25. This bill creates a state version of the federal Consumer Financial Protection Bureau by restruc- turing the Department of Business Oversight. That department will be renamed the Department of Financial Protection and Innovation and be given broad general jurisdic- tion over providers of consumer financial products and services. The bill also gives the department authority over certain companies that are not subject to state over- sight, such as credit reporting agencies, debt collectors and certain financial technology companies, including those providing prod- ucts. This means more regulation to come in California. AB 1864 will take effect on Jan. 1.

18 The Commercial Factor | December 2020 In addition, New York SB S5470B more contributions to meet our Cole Harmonson, Dare Capital requires certain providers that 2020/2021 goals. Our goal in [email protected] extend specific terms of commercial increasing communications is to 512-886-3272 financing to a recipient to disclose drive up membership! In addition, Robyn Barrett, FSW Funding certain information about the offer Hamilton gave a great election [email protected] to the recipient. The bill is on the update as it relates to factors on our 602-535-5984, ext 101 • governor’s desk, so we will have to monthly AFA webinar on Dec. 9. If continue to watch for now. you missed it, please check it out on The goal of the AFA is to increase membership the AFA website. and financial support from every IFA member. Both measures raise the question: We urge every IFA member to contribute to Are we better off with one standard Our membership and fundraising the AFA as we are in the midst of our annual federal disclosure form or different drive have great momentum, with membership fund drive. Currently, we have ones state by state? new members and contributions Bronze Members, who have contributed as little as $500, up to Diamond Members, who going in the right direction. Besides have contributed in excess of $10,000. This AFA CONTRIBUTIONS contributions, please be heard by is a very inexpensive insurance policy to help joining, listening and participating. protect our industry from needless regulation We appreciate the ongoing Please contact Cole or Robyn with which will be both costly and prohibitive. contributions from current AFA Please consider supporting the American any ideas or comments. members and still need to raise Factoring Association.

2020 Members As of December 22, 2020

Diamond Member ($10,000+) Dare Capital K.W. Receivables Accord Financial, Inc. Evergreen Working Capital LDI Growth Partners, LLC Apex Capital Corp FirstLine Funding Group Levinson, Arshonsky & Kurtz, LLP Crestmark Bank Gateway Commercial Finance Nationwide Capital Funding, Inc. Great Plains Transportation Services, Inc. Heritage Bank of Commerce/ Bay View New Century Financial Gulf Coast Business Credit Funding Prestige Capital Finance, LLC International Factoring Association Lenders Funding, LLC Primary Funding Corporation J D Factors Match Factors, Inc. QC Capital Solutions Sallyport Commercial Finance, LLC Mazon Associates, Inc. Sky Business Credit, LLC TBS Factoring Service, LLC Orange Commercial Credit Southwest Commercial Capital, Inc. Triumph Business Capital Secured Finance Network Steelhead Finance Sekady Capital Platinum ($5,000-$9,999) Bronze ($500-$999) SevenOaks Capital Associates, LLC 12five Capital ACS Factors Accutrac Capital Solutions Inc. Silver ($1,000-$2,499) Camel Financial, Inc. CapFlow Funding Group Amerisource Funding, Inc. Chesapeake Bank eCapital LLC AmeriTrust Capital Corp. Concept Financial Group FSW Funding Business Finance Corporation Entrepreneur Growth Capital Goodman Capital Finance, Capital Solutions Bancorp LLC Exchange Capital Corporation a division of Independent Bank Resources, LLC Grace Capital Resources, LLC LSQ Funding Group, LC Commercial Business Funding Integrated Logistics & Associates PRN Funding Corporation Invescap Republic Business Credit, LLC Commercial Finance Consultants Paragon Financial Group Southstar Capital Commission Express National, Inc. The Interface Financial Group Sunbelt Finance Commonwealth Capital, LLC Other (Under $500) Truckstop Factoring CoreFund Capital, LLC Plus Funding Group Viva Capital Funding, LLC ENGS Commercial Capital Stonebridge Financial Services, Inc. FactoringClub Gold ($2,500-$4,999) TradeGate Finance, Inc. Factor King, LLC AR Funding, Inc. Gary M. Krasna, P.A. Assist Financial Services, Inc. J.O.B.E. Services, Inc. Charter Capital Holdings LP

The Commercial Factor | December 2020 19 WHAT’S NEW AT IFA DECEMBER 2020

Our Preferred Vendors have undergone a screening and evaluation process. When you contact the Preferred Vendors, you will need to indicate that you are an IFA member to receive your benefit. If you offer a good or service to the Factoring Industry and are interested in applying for Preferred Vendor Status, please contact the IFA at 805-773-0011.

ASSOCIATIONS COLLECTIONS CREDIT INFORMATION The Collection Law Group, Inc. Ansonia, An Equifax Company The following trade associations offer member The Collection Law Group (“TCLG”) is a group Ansonia is your next-generation business credit pricing for events attended by IFA members: of lawyers who collect past due commercial and collections solution offering decisioning tools Commercial Factoring Expertise accounts receivables from businesses across and over $1.3 trillion in accounts receivable data Committee of China (CFEC) the United States. Our collection approach has from major industries across North America. http://cfec.org.cn been helping finance and factoring organiza- 200+ factors and 70% of North American tions collect past due amounts more quickly Truckload, LTL and 3PLs rely on Ansonia for inno- FCI more efficiently and more cost effectively than vative ways to manage debtors and fraud risk. As www.fci.nl other approaches. Our approach combines the always, Ansonia delivers quality data, credit, and World of Open Account (WOA) best of collection agencies with the best of law collections solutions you can afford. Call us today https://woa.community/ firms giving our clients higher recover amounts to see why IFA members voted Ansonia their more quickly with less cost. At TCLG we call our number one source for underwriting account BROKER approach our “Attorney Driven Approach”. debtors. Rainstar Capital Group Brad Magill • [email protected] 855-ANSONIA • 855-267-6642 Rainstar Capital Group is a multi-strategy private www.tclginc.com • 888-304-4347 www.ansoniacreditdata.com equity firm based in Grand Rapids, Michigan that IFA Member Discount: For the first five IFA Member Benefits: Complimentary review makes direct investments and provides advisory collection files sent to TCLG by IFA members of your portfolio’s risk distribution. Includes debt capital. Rainstar partners with factoring that are $10,000 or more in amount due, a breakdown of debtors by risk category firms who have clients seeking debt capital TCLG will offer a reduced fee from our (high, medium, or low) and visibility to how products separate from the factoring solution for normal 20% contingency fee to a 15% debtors are paying other factors as well as growth needs. Through its multiple lending plat- contingency fee. Future discounts if any will all industries and much more. Ansonia Alerts forms with over 250 registered lenders, Rainstar depend on the volume of files and nature of $20 per month (20% savings) the files. provides factoring firms’ clients debt financing FactorsNetwork product lines for commercial real estate, corpo- VeriCore FactorsNetwork provides an online platform rate finance, small business and equipment VeriCore is the pioneer of ZERO fee collec- where Factors share trade experiences with each needs. Product lines include: Unsecured Lines of tions! A ZERO fee collection takes place when other. Members are able to pull unlimited Credit Credit, Revenue Based Lines of Credit, Revenue VeriCore compels the debtor to pay for the cost Reports as well as monitor and analyze their Based Advance, Merchant Cash Advance, of collection. ZERO fee collections don’t happen portfolio. Transportation Factors benefit from Business Lines of Credit, Inventory Financing, every time, but many IFA members have already our CarrierMonitoring and ChameleonCatcher Purchase Order Financing, Equipment Leasing, experienced ZERO fee collections over 100 programs and their clients profit from our Accounts Receivables Factoring, CMBS loans, times! VeriCore is a contingent, fully licensed and LoadBoard. We even offer a Sales Tool to help Agency loans, Bridge Financing, Hard Money and bonded agency with an A+ rating with the BBB you find new clients. Commercial Contractor Credit Lines. Rainstar’s and a strong focus on compliance. Our propri- lending platform finances clients from $10k to 435-659-4612 etary process is designed to create constant and www.factorsnetwork.com $300M and covers all credit profiles across the methodical pressure on a debtor which compels listed product lines. IFA Member Benefits: 50% cost savings for them to prioritize you at the top of their AP list. the monthly membership fee. It is normally Kurt Nederveld: [email protected] We have a national and international presence $1,000 per month, but IFA members will pay (616) 953-6036 • ww.rainstarcapitalgroup.com and we would relish an opportunity to show you $500 per month. IFA Member Benefit: Rainstar Capital Group how good we truly are. will pay your IFA membership dues. Members 800-433-4903 x1162 CREDIT CARD PROCESSING will pay IFA directly and Rainstar will reim- Chris Dawson: [email protected] Clarus Merchant Services burse member within 30 days of payment. www.vericore.com Members will be eligible for membership fee Clarus Merchant Services offers a custom IFA Member Discount: Contingency rate of program developed specifically for how the reimbursement if they either: 22% or will match the rate of any agency • Fund a client that was presented by Factoring Industry processes their credit card that is fully licensed. Rainstar during the preceding 12-month transactions. Our program provides detailed period. CONSULTING reporting that allows tracking of each invoice and • Refer a company to Rainstar that is funded fee transaction for easy account reconciliation through a Rainstar funding source during FactorHelp with their customers and clients. We work with the preceding 12-month period. FactorHelp has come to be regarded as the each member to ensure all processing costs factoring industry’s premier resource provider. are covered and that they are doing so within CERTIFIED MAIL Their manuals, in use on every continent of the guidelines of MasterCard / Visa. In addition RMail Registered E-mail the world, are setting the industry standard, we provide IFA members direct access to their Go Paperless. Switch to RMail Registered E-mail and their reputation as the one-call solution account manager for immediate response and to send your important notices. RMail Registered for factoring problems is growing. By consis- support. E-mail services allow factors to end disputes tently introducing innovative, viable products, David Powers • [email protected] attributed to missing, misplaced or denied vigilantly cultivating an extensive alliance of 540-222-3925 • www.clarusdc.com receipt of notification emails for notices of Strategic Partners and providing the profes- IFA Member Benefits: IFA members that assignment, notices of default, borrowing base sional expertise demanded of an industry purchase the CardX program receive a one- certificates, and other important notifications. It leader, FactorHelp strives to maintain its goal of time $200 rebate* also helps speed invoice collections with proof of providing the unparalleled service the factoring *Once the member has processed a whole invoice delivery irrefutably starting the accounts industry expects from a solutions partner. month using the program receivable aging clock. 972-722-3700 • www.factorhelp.com IFA Members receive a discount of 10% on ePaymentAmerica www.rpost.com/ifa ePaymentAmerica is the nation’s leading IFA Member Benefit: IFA Members save their consulting fees and 5% discount on all FactorHelp products in the IFA store. provider of processing services for the factoring, $300! Subscribe to 1000 units RMail plan for A/R financing, and P/O financing industries. They only $390! (Normally $690)

20 The Commercial Factor | December 2020 offer IFA members exclusive VISA, MasterCard, industry information to assist in accomplishing comprehensive software solution to help them American Express and Discover pricing, a their growth potential. become a modern and efficient online lender. discount on their virtual gateway, and a discount 469-402-4000 • www.searchcf.com Finvoice came out of a passion to help small on PCI Compliance Certifications. businesses who generate 67% of jobs and 50% [email protected] of the world’s GDP. 901-385-5327 • www.epaymentamerica.com IFA members will receive an additional [email protected] 60 days added to the guarantee on all Andrew Bertolina IFA Member Benefits: Interchange Plus placements. 310-951-0596 • www.finvoice.com Pricing* Bundled Monthly Service Fee of IFA Member Benefits: Complimentary $30.00 (includes IRS regulatory compli- SOFTWARE landing page review/optimization for digital conversion. 15% discount on pricing for the ance, account maintenance, PCI compliance, Artis Trade Systems virtual gateway & online management tool.) first year. *Based on volume/transaction count. Artis Trade Systems offers ArtisPay, the revolutionary Supply Chain Finance (SCF) app HubTran FUNDING that allows banks and lenders to provide buyers HubTran is the leading provider of back office and suppliers with a flexible, customizable, easy- automation technology for factoring companies. Haversine Funding to-use enterprise-grade software. ArtisPay is a HubTran’s SaaS platform streamlines invoice Haversine Funding helps commercial lenders fill fully cloud-based software-as-a-service (SaaS). processing, document management, and excep- funding gaps through participation programs, Partnering with Artis Trade endows lenders tion handling. Customers increase productivity lender finance and growth capital funding. Our with a high-tech innovative partner with deep 4X, reduce errors and increase capacity. HubTran’s clients are factors, ABLs, inventory, purchase industry experience that will help market and innovative technology leverages Optical Character order and other commercial finance compa- grow their SCF program. Recognition and Artificial Intelligence to simplify nies. We offer lines up to $5MM for individual back office work without requiring massive invest- 480-250-8186 • www.artistrade.net ments of time in training and integration. transactions and up to $25MM for portfolio IFA Member Benefits: IFA members will participations. receive a 33% discount on the registration fee Matt Bernstein Gen Merritt: [email protected] 630-544-0459 • www.hubtran.com 469-360-9712 • www.haversinefunding.com EQ Riskfactor IFA Member Benefit: 1 week trial and waived IFA Member Discount: For transactions EQ Riskfactor is the leading provider of risk setup/integration fees that equate to funds employed averaging management and fraud analytics software for ProfitStars® $5 million during the previous 6 months, the global commercial finance market including Haversine Funding would sponsor an IFA ProfitStars® is an industry-leading provider of factoring organizations, banks and alternative portfolio management systems for commercial conference or course registration fee. The lenders. EQ Riskfactor’s member may receive one free admission to finance, and offers a common framework technology uses automation to identify poten- for factoring, asset-based lending, inventory an event per year. tial frauds along with advanced analytics. The finance, and lines of credit. Our dynamic technology highlights unusual activity so lenders Commercial Lending Center Suite™ incorporates Liquid Capital Corp. can better investigate fraud and reduce risk. Liquid Capital has been in the Factoring industry all-digital loan origination, decisioning and The tools also help lenders to eliminate manual portfolio management workflows that save since 1999 and entered into a with processes, saving time and money. Next Edge Capital in 2015. This relationship has time, improve accuracy and improve the overall allowed them to pursue an aggressive growth Aaron Hughes • [email protected] borrowing experience. strategy focused on the following key initiatives: Melissa Havers • [email protected] 205-972-8900, option 3 • www.profitstars.com www.equinitiriskfactor.com IFA members will receive 10% off new • The acquisition of A/R portfolios from Factors +44 1903 698600 ProfitStars lending solutions product looking to exit the industry IFA Member Benefit: Members will receive purchase. For IFA members who are Member benefit: Trailer fees for the life of free hosting when they purchase EQ currently ProfitStars customers: Free one the acquired accounts Riskfactor. This is worth up to $5,000 day FactorSoft refresher course, per year, at • Soliciting Factors to join the Liquid Capital depending on the number of users and size ProfitStars’ training facility in Birmingham, AL. network to gain access to additional capital, of firm. a robust range of working capital and trade TAX COMPLIANCE FactorCloud finance products, extensive marketing and back Tax Guard office support We built FactorCloud when we, a former Member benefit: Liquid will pay your IFA factoring company, couldn’t find software we Tax Guard fills a critical gap in a commercial membership or Annual Conference registra- lender’s management toolset with liked. Our sister product Firebolt — artificial efficient, real-time and actionable insight into tion fee for the following year. intelligence and OCR - is built right in. With • ABL referrals from existing Factors who would the true, non-public IRS tax compliance status this powerful combination, our operations of their prospects and clients. Our due diligence not normally fund this type of transaction employees managed nearly 80% more NFE. You reports, tax compliance monitoring and Member Benefit: The referring Factor will can also grow your portfolio with fewer people. resolution solutions support commercial lenders earn an origination fee and have the oppor- Save time and increase efficiencies. Reduce throughout every stage of the funding life-cycle. tunity to participate in the funding. costs, risk and errors. Make profit rain with Robert Thompson-So • 866-272-3704 FactorCloud and Firebolt. 646-502-4478 • www.tax-guard.com Rich Porterfield: [email protected] www.Liquidcapitalcorp.com Rachel Presley: [email protected] [email protected] IFA Member Benefits: IFA Members will 888- 888-0694 • www.factorcloud.com receive ten free IRS Tax Return Transcripts MARKETING IFA Member Benefit: 10% discount on within the first 30 days of service. One time subscription fee offer also extended to current IFA members. 50 Words LLC 50 Words is a marketing outsource firm for FactorFox UCC SEARCH companies that either do not have a marketing FactorFox has been providing factoring software First Corporate Solutions department or that need to add more manpower to small, medium, and large companies during First Corporate Solutions is a full-service public to their existing marketing team. They serve as the last 15 years. FactorFox is beautifully records provider specializing in the research, your dedicated marketing department. designed, user friendly, and powerful. With retrieval, and filing of public records nationwide 610-631-5702 • www.50wordsmarketing.com every line of code we write, we challenge the and internationally. Their services include IFA Member Benefits: IFA Members will status quo. We are continually finding ways to industry standards such as UCC, lien and litiga- receive five free hours of marketing services mitigate risk, and give our factors a competitive tion searching, UCC and corporate filing services, with the purchase of any marketing service. advantage in the factoring industry. nationwide registered agent coverage, and (Offer for new clients only) 877-890-1897 • www.factorfox.com real property title searching, as well as unique IFA Member Benefits: In addition to the one solutions such as state and county account RECRUITMENT AGENCY month free trial for all users, IFA members monitoring designed specifically for Factors. Commercial Finance Consultants receive an additional month to try out the 800-406-1577 • www.ficoso.com Established in 2002, CFC is the premier provider complete software. [email protected] of human talent to the factoring industry. CFC’s IFA Member Benefits: IFA members will Finvoice receive a 10% discount off of the retail rates goal is to provide their clients with the best Finvoice offers traditional factoring companies available human capital and the most current of their signature state and county account and asset-based lenders a simple-to-use and monitoring product.

The Commercial Factor | December 2020 21 FEATURE DECEMBER 2020

The Future of Factoring: Identifying the Top Industry Trends for 2021 After a turbulent year for the factoring industry, Steve McDonald predicts which trends will carry over into 2021, specifically noting that a tightening of bank lending will cause many small businesses to look for alternative financing such as factoring.

BY STEVE MCDONALD

There is a mantra in the factoring year filled with renewed optimism TRENDS HERE TO STAY industry that says: “Banks look for a return to normalcy mixed with The world has changed. More specif- primarily in the rearview mirror a healthy dose of concern for the ically, consumer spending habits with respect to a client’s financial unknown. Despite this uncertainty, and priorities have all changed as a performance, whereas a factoring I expect the need for factoring to result of the pandemic, which has company looks at the opportuni- increase as companies look for forced businesses to adapt in real ties a company has in the future.” financing partners to help them time. We all experienced this change Considering this, as we look to the manage their cash flow and keep in behavior almost immediately new year, it’s going to be difficult for their businesses running smoothly with the somewhat irrational uptick banks to evaluate a business’ perfor- during these challenging times. in the purchase and hoarding of mance in 2020. Therefore, does this As a larger-scale factoring and asset- paper goods, cleaning supplies present a potential growth oppor- based lending company, eCapital and groceries in March. Later, this tunity for the factoring industry in processes more than 125,000 transition led to a surge of interest in 2021? invoices per month for 80 different home décor, housewares, bicycles, We are wrapping up an unprec- market sectors. This data allows pools and other items that have edented year that was led by the us to pick up on trends and get a helped people distract themselves devastating economic fallout snapshot of which areas are doing during lockdown periods. These and ongoing ramifications of the well and which are not. Looking at changes in consumer behavior and COVID-19 pandemic. With the that data, I see many reasons to be greater reliance on e-commerce recent vaccine news, we look to bullish about 2021, but first let us have caused a massive shift across 2021 with the promise of a new see what we learned in 2020. all facets of the supply chain.

22 The Commercial Factor | December 2020 As we look ahead to 2021 and that growth puts on cash flow and Giving them an online portal that the general outlook for factoring the uncertainty of future financial helps them review and answer services, several aspects should be performance. Banks typically common questions about their considered. For example, despite prefer to finance companies with account quickly and easily gives the overall negative economic predictable earnings, steady cash clients another level of self-service impact of COVID-19, the freight flow and manageable growth rates, that can help their bottom line. In factoring sector is thriving as a result while factors often can look past the long term, technology is critical, of truckers having to adapt to the those issues and provide financing particularly when it comes to shifts in the supply chain that have based on the quality of a client’s payments, but it will be important to occurred during the pandemic. accounts receivable and overall scale up carefully. Some businesses need funding account debtors. Earnings, cash flow Client demands also will vary. for growth or ongoing operations, and growth rates don’t present a For example, freight businesses while some need financial support roadblock for a factoring business want their money quickly without while they work to reduce expenses if it can get comfortable with the complex requirements. They want and adapt to the new normal. overall and customer base more transparency and insight into Transportation companies will likely of the client. their financing requests. On the continue to experience growth, as Factors look past the numbers to commercial finance side, companies there is a shortage of supply and understand the story, understand want smooth operations and want consumer spending is rising again, at why the company is having issues, to secure alternative financing least in the short term. Furthermore, evaluate the company’s plans to with less hassle and fewer require- equipment values are low, enabling address the problem and determine ments, such as strict covenant and firms to buy new trucks from if they can support the company. revenue requirements from banks. auctions and increase their fleet Factors also look to evaluate the While their funding requirements size. These firms will have to rely larger company story. For example, may differ, all businesses will want on factoring to secure the funding the company may have lost a signifi- to work with a stable financier on they need to effectively scale their cant customer or a contract, or won which they can depend. businesses. a new contract, and need help with I expect the potential for renewed On the consumer spending habits financing as result. growth for our industry in 2021, side, with more consumers relying In the coming year, banking rela- especially if there is a lack of further on online shopping as a result of tionships will become increasingly federal aid and if the industry learns lockdowns, small shops on Main strained, with banks looking to exit how to capitalize on the “new Street are struggling due to a long-held relationships that have normal.” Since banks rely on their lack of customers and reduced become unprofitable. Bank clients existing business models, they will interest in shopping in person. The that have tripped covenants will be have to decide if they can continue pandemic also accelerated growth forced to look for additional funding to support these businesses when and demand for last-mile carriers from non-bank sources. As a result, they no longer meet their risk like Amazon, meal delivery services many companies will need alterna- profile. like Good Food and Hello Fresh, and tive financing, and factoring is a many other e-commerce delivery The bottom line is that factoring good solution. The approval process will play a larger role in helping companies. This shift from shopping is easier, it doesn’t create debt when at grocery stores to receiving pre- companies improve their chance of clients use their own company’s success during this time of economic made meal kits through the mail will assets and there are lighter under- continue well beyond the pandemic. uncertainty. Factoring companies writing criteria, translating into are uniquely positioned to look past faster access to increased working numbers, listen and understand the FILLING GAPS LEFT BY BANKS capital. story while working with these busi- At eCapital, our client profile nesses during these “new” times. 2021 typically fits into two categories. DOUBLE DOWN ON might just have the potential to be a They are generally experiencing TECHNOLOGY good year for our industry after all. • rapid growth where “opportunity” The time it takes to submit appli- is putting a strain on their cash cations and get cash in hand has flow, or they have tripped a finan- been greatly reduced because of cial covenant with their banking technology adapted by the factoring institution. In most cases, banks industry at large. Providing clients Steve McDonald is are uncomfortable financing fast- president of eCapital. with online onboarding, direct growing small and medium-sized digital payments and payouts is businesses because of the strain essential in providing capital quickly.

The Commercial Factor | December 2020 23 FEATURE DECEMBER 2020

Build with Bricks, Not Sticks: Helpful Provisions for Factoring Agreements Ross Angus Williams and Scott R. Larson outline the most important provisions to include in a factoring agreement to ensure it holds up no matter which way the wind blows.

BY ROSS ANGUS WILLIAMS, ESQ. AND SCOTT R. LARSON, ESQ.

24 The Commercial Factor | December 2020 We all know the story of the three little less restrictive. Including an attorneys’ fee pigs. Factors can think of the contracts they provision in the pertinent contracts will enter with their clients as the legal house likely improve the chances of recovery. they have built to protect against the day Regardless of the state a factor operates the big bad wolf — the client’s efforts to in, including well-crafted attorneys’ fee prevent or evade collection — comes to provisions in the factoring agreement is by visit. Each clause is a piece of the building far the best way for a factor to ensure that materials in that house. Based on experi- it can obtain attorneys’ fees in litigation ence, some of the important clauses that against the client. Likewise, factors should are left out or poorly drafted most often include provisions that require their clients include those covering recovery of attor- to have attorneys’ fee recovery provisions neys’ fees, forum selection, UCC filing in their contracts with account debtors. authorizations and confidentiality. For This second step will increase the likeli- factors who want to build their legal houses hood that the factor can viably pursue the from bricks and not sticks, here are some account debtor in lieu of or in addition to helpful tips to follow. the client if the account debtor hasn’t paid the client. ATTORNEYS’ FEE RECOVERY PROVISIONS FORUM-SELECTION PROVISIONS The ability to recover attorneys’ fees An enforceable forum-selection provision is often the key factor that determines in a factoring agreement — often included whether a factor will pursue collection in the “additional terms” tucked at the end through litigation and from whom they will of the agreement — may mean the differ- pursue collection. Including an attorneys’ ence between litigating a case in a factor’s fee recovery provision in a factor’s contract “home court” or the obscure, far-flung and with the client and requiring client verifica- often unsympathetic hometown of a client tion that the client’s own contracts with or account debtor. account debtors contain such a provi- sion benefiting the client are important A forum-selection provision, when protections to maximize a factor’s ability crafted correctly, 1) determines the venue to economically collect through litigation where a case will be tried (such as courts against as many potentially solvent parties within a specific city, county or state) as possible. and 2) provides courts in that venue with personal jurisdiction over the parties. Both Under the “American” rule, a party can points are important: Venue determines recover attorneys’ fees only if authorized whether the case is being brought in the to do so by contract or statute. The illustra- correct court and jurisdiction determines tion of that rule in statutes differs from whether that court has the authority to state to state. Some states, like Texas, have rule over the defendant. Without both, statutes that allow a person to recover a case may be subject to dismissal or attorneys’ fees from certain types of transfer. Having a proper forum-selection defendants (but not others), regardless of clause allows the parties to decide up whether there is a fee recovery provision front where their disputes will be litigated, in the contract, on certain enumerated which can reduce costs. Having uniform, claims, such as: 1) rendered services, 2) enforceable forum-selection clauses across performed labor, 3) furnished material or all factoring agreements also can lead to 4) an oral or written contract. Other juris- greater predictability in dispute resolution dictions, like Pennsylvania, provide that and even greater cost reduction. no fee recovery is available on contract claims absent an express provision in As opposed to permissive language, the the contract. Other states have different forum-selection clause should provide statutory schemes that may be more or for a mandatory and exclusive venue. Although specific magic words are not

The Commercial Factor | December 2020 25 FEATURE DECEMBER 2020 At the start of the long as the agreements are signed before one tries to foreclose on the negotiation process, one security interest. Inclusion of these needed, the provision must make important document to provisions will at least minimize time clear that the stated forum is the spent dealing with specious argu- only venue for disputes and that the have in the factor’s toolkit is ments against collection. courts in that forum have exclu- sive jurisdiction over the parties’ a concise and effective non- CONFIDENTIALITY CLAUSES disputes. Possible language could disclosure agreement (NDA) Many factors can justifiably consider include stating that the parties that protects the pricing their pricing models confidential and must bring any lawsuits in the state proprietary business information. venue, or that the stated forum is information the factor Factoring clients may, however, be the exclusive venue for all disputes tempted to shop around a factor’s relating to the contract. Somewhat discloses in the negotiation pricing. Through confidentiality surprisingly, saying the venue “shall” process as confidential and provisions, factors can (and should) lie in a certain venue has been inter- seek to protect valuable pricing preted as permissive, not exclusive. proprietary information. information in both the negotiation The wording of these provisions is a process and in a resulting factoring minefield. agreement. Additionally, the parties should agree At the start of the negotiation Key provisions to include in a that they submit to the jurisdiction of process, one important document factoring agreement include those the courts in the chosen venue and to have in the factor’s toolkit is a that 1) expressly permit a factor to that those courts have jurisdiction concise and effective non-disclosure file UCC statements on a client’s over the parties. Finally, the clause agreement (NDA) that protects collateral and the collateral of a should provide that the parties waive the pricing information the factor client’s guarantor and 2) prohibit any challenge or objection to a lawsuit discloses in the negotiation process the filing or amending of UCC filing being brought in the chosen forum as confidential and proprietary statements by the client or its guar- on grounds of lack of jurisdiction or information. improper or inconvenient venue. antor without prior written consent of the factor. NDA forms vary widely in complexity, length and scope. But an UCC FILING PROVISIONS The first type of provision is impor- effective NDA will almost always: Collateral often presents the best tant because it gives a factor the target for collecting on a client express right to perfect its security 1. Identify the parties to the or account debtor’s receivables interest in the collateral. This agreement through litigation. Therefore, having protects against claims that the 2. Define what is deemed to be effective provisions that protect a factor’s security interest in certain confidential in language clear factor’s interest in that collateral is collateral was not perfected merely enough for a stranger to the of paramount importance. because the filing of an otherwise contract — like a juror or judge valid financing statement was not Security interests in most types of — to be able to tell what the authorized by the client or guar- collateral are perfected by filing a confidentiality material comprises antor. The second type of provision financing statement, commonly 3. Define the scope of the guards against fraud and misap- in the form of a UCC-1. A factoring confidentiality obligation by the propriation and creates a further agreement should include certain receiving party — what uses and basis for a breach of contract claim if provisions addressing such methods disclosures are prohibited violated. of perfection. A factor’s ability and 4. List any exclusions from Fortunately, case law in some authorization to file UCC-1 financing confidential treatment, such as bellwether jurisdictions, such as statements is an important step in for information obtained through the Southern District of New York, putting the public on notice as to a third party under no confiden- provides that the UCC-1 financing who owns the purchased accounts tiality obligation or for publicly statement can be filed before these or other collateral in which the factor available information holds a security interest. types of provisions are agreed to and be retroactively ratified so 5. Define the term of the agree- ment — how long it will last.

26 The Commercial Factor | December 2020 Specific requirements may vary the factoring agreement, which will by jurisdiction. The NDA does not otherwise cut off prior agreements prevent the potential client from between the parties unless specifi- Ross Angus Williams, Esq., is a partner with Bell shopping around, but it can seek cally excepted. Nunnally in Dallas. He can to obligate them to not disclose a be reached at rwilliams@ factor’s pricing model as part of that CONCLUSION bellnunnally.com. process. Following these tips in consultation Scott R. Larson, Esq., Once the deal is struck and with counsel, or in review of one’s is an associate with Bell memorialized in writing, a further agreements, will help keep a factor’s Nunnally in Dallas. He can confidentiality provision is advisable legal house strong and, ultimately, be reached at slarson@ as a provision of the factoring agree- increase the collectability of — or at bellnunnally.com. ment. While the building blocks of least the options for collecting on — such a provision are typically virtu- unpaid accounts despite huffing and ally identical to those in the NDA, puffing from the client or account including such a provision in the debtor. • factoring agreement allows its term to be extended on from the effective The information provided in this article date of that agreement forward. It does not, and is not intended to, constitute also makes sure that the confiden- legal advice; instead, all information, content and materials available are for tiality obligations continue past the general informational purposes only and merger and integration clause of may or may not be up to date.

PAYROLL TAX LIABILITY Lastly, it is possible to mitigate IRS requesting both the IA and the lien Continued from page 17 wrath for unpaid payroll tax. BDOs subordination for improved IRS can work with the company and the assistance in securing the requested The next step is for the tax profes- tax professional to find proof of the relief. sional to secure an installment following: While waiting for the lien subor- agreement (IA) within seven to 1. The company did not pay other dination, the factor company can 30 days while simultaneously bills during the time the IRS was fund the IA by directly paying the filing a lien subordination, which not paid IRS from the accounts receivable takes approximately 30 days. The 2. The contractor illegally withheld invoices. There are additional BDO should quickly provide the methods to successfully solve factor company contract and UCC funding or illegally cancelled the contract company payroll tax issues, but they statement to the tax professional. are beyond the scope of this article. It will be required for the lien 3. Lawsuit information that subordination. will lead to full payment of the If a BDO finds that a client or a outstanding taxes and penalties prospective client owes payroll tax, In my experience, with proper it is possible to keep or sign the documentation of the factor 4. Embezzlement or theft client. The specific solutions listed contract, the IRS will subordinate 5. Delinquency was due to earlier in this article will enable a the lien. Under IRC §6325(d)(2), unforeseeable events, such as an BDO to help a company navigate the IRS will subordinate its tax lien illness, major accident or death of resolution for payroll tax liability by with proof that collection of the tax a partner, significant other or child securing an IRS installment agree- liability will increase. The subordina- ment and/or lien subordination. As The BDO, company and tax profes- tion will increase the collection of factoring companies continue to sional also should review the taxes because the factor company face COVID-19 challenges, do not numbers on the payroll tax forms will continue payments of accounts dismiss potential clients with payroll that were filed for accuracy, and receivable to the company so it will or other tax issues. Instead, seek the then perhaps conduct a forensic have funds to continue its business. advice of a payroll tax professional accounting. Provide these explana- The IRS does not want the company to quickly resolve these tax issues to tory situations to the IRS RO when to go out of business. save or acquire new clients. •

The Commercial Factor | December 2020 27 LEGAL FACTOR by Steven N. Kurtz, Esq. DECEMBER 2020

Regulation of Commercial Finance Companies is Here and Intensifying

Until recently, non-bank lenders have escaped regulation, with the exception of those in California. Although California has had a long established regula- tory scheme for non-bank lenders, in the past, those regulatory efforts were In part one of a two-part relatively minor. For years, non-bank lenders, including factors, obtained a California finance lenders license and in exchange for a small fee every year and series, Steven N. Kurtz, Esq., minor reporting, were granted a safe harbor from California’s strict usury laws. details the increasing push for regulations at the state level for commercial finance Steven N. Kurtz, Esq. has represented factors, banks and companies, including factors. asset-based lenders on a continuous basis since 1987. He is the co-general counsel to the IFA and a founding partner of Levinson Arshonsky & Kurtz, which has offices in California and Oklahoma. He practices in the areas of , insolvency, workouts, loan documentation and trade finance, in both transactions and litigation matters. He can be reached by phone at 818-382-3434 or by email at [email protected].

28 The Commercial Factor | December 2020 The times have changed for the for a finance lenders license. The commercial finance industry and The new trend of finance lenders license subjects the regulation has intensified, primarily regulation at this point holder/applicant to background at the state level. Although there checks, financial net-worth require- was an effort by the federal govern- is primarily at the state ments and periodic (a ment to include factors in shadow different conversation). The license banking regulation, this never level, but it could easily holder is exempt from California’s happened, in part, through the usury law, which is 10% and coupled efforts of the American Factoring be subject to federal with stringent civil penalties in favor Association. However, thanks to regulation under the of the borrower as well as civil, several years of merchant cash administrative and criminal penalties advance lenders extending credit Commerce Clause of in favor of the state. to anyone with a pulse and bank The second piece of California’s account while charging 70% plus the U.S. Constitution. regulatory framework for non-bank rates of return and enforcing New lenders is that for every offer of York contractual confession of judg- commercial financing of $500,000 ments, lawmakers throughout the or lower, the offer must include a country woke up. Now, non-bank likely work with each state’s laws on usury. statement that reflects how much lenders, including factors, will be the financing will cost. For factoring the subject of additional efforts to California is the first state to require and other forms of financing where regulate. a finance lenders license for all advancing funds — and the collec- State legislators are looking into non-bank lenders or factors. The tion thereof always varies — the all forms of non-bank lending. law is based upon the California lender cannot give an example of a This includes factors who engage State Constitution, which sets a typical financing. This new law has in traditional non-recourse deals, maximum rate of interest at 10%, been on California’s books for nearly which, according to most case law, then branches out to a patchwork of two years but will not go live until are true sales and not loans. The different statutes and regulations. the DFPI prepares its accompanying lending versus true sale argument For years, California just focused regulations. These regulations are for purposes of regulation is now on licensing. The licensing and nearly finished and may even be irrelevant. The pending laws just its one-time sleepy enforcement in place by the time this article is look at one thing: Do you extend were handled by the Department published. of Corporations and then by the money to someone and expect to be New York recently passed two repaid? If the answer to this ques- Department of Business Oversight. However, under Governor Gavin pieces of legislation that are tion is yes — and it always is — then substantially similar to the scheme in the regulations apply. Newsom, the Department of Business Oversight has been reor- California, including its own licensing The new trend of regulation at ganized and is now known as the law as well as a business truth in this point is primarily at the state Department of Financial Protection lending law. The licensing rules level, but it could easily be subject and Innovation, whatever that are set forth in Senate Bill S6688, to federal regulation under the means. This change is so recent that which is waiting for Governor Commerce Clause of the U.S. forms have not yet been modified Andrew Cuomo’s signature, and Constitution. For now, we can and it’s not clear what the acronym will require all non-bank lenders expect states to focus on two will be. I’m guessing it will be the to obtain a license. The licensing primary forms of regulation: First, DFPI. scheme will include the usual things, holding a lending license with the such as background checks and particular state, which subjects the The DFPI is headed up by Manny capital requirements. However, license holder to the ever-expanding Alverez, who served with the there is more. New York will not set of rules which govern license Consumer Financial Protection allow confession of judgments to holders. The second area of focus Bureau. If you are a non-bank be executed in connection with will be rate and financing cost disclo- lender, including a non-recourse a non-bank loan. There is a safe sures. You will be required to state factor, the DFPI will expect you to harbor for lenders that enter into or how much a typical funding will have a license regardless of the rate solicit fewer than five transactions cost, which can be challenging and charged or whether the transaction in a 12-month period. While this safe subject to confusion for everyone can hold up in court as a true sale. harbor may be helpful to a lender concerned. These rules also will The mere act of financing by a non- or factor outside of New York, the bank will trigger the requirement

The Commercial Factor | December 2020 29 LEGAL FACTOR DECEMBER 2020

The regulation of non- on non-standard credit approvals, Right now, factors and asset-based interest rates of greater than 25%, lenders operate nationally and bank lenders is a trend maturity of fewer than two years are protected by the Uniform and payment frequency greater Commercial Code, which, with the that is growing. This will than bi-weekly. This law would have exception of a few provisions, is required licensing for all alternative the same in every state. The UCC probably be a red state lenders and brokers and detailed is set up so that its rules govern versus blue state issue, disclosure on what and how brokers commercial transactions and that are paid. In addition, the law had the terms of a security agreement and it’s highly likely continuing education require- bind the debtor and all . ments for the alternative lenders There is a real possibility that laws or other states will follow as well as requirements that all regulations may be enacted which California and New new employees receive education. contradict the UCC, which will result The law also would have required in messy litigation. Also, there is York’s lead. that all litigation for alternative the danger that state regulators lenders against the borrower be will start to take away the benefits commenced solely in New Jersey. of financing contracts, setting up This proposed law would have likely potential constitutional challenges. solicitation language is troubling and caused many factors and asset- can sweep up almost any commu- The trend toward regulation in the based lenders to retreat from the commercial finance industry must nication. Also, it is likely that a New state, and it seems that the drafters York regulator may take a tip from be monitored closely. The AFA was and sponsors did not understand or set up by the International Factoring a California regulator and consider care. each advance under a revolving line Association for this very purpose. of credit or factoring agreement The regulation of non-bank lenders Other trade organizations that assist to be a separate loan. If a lender is a trend that is growing. This will lenders also are on the watch for violates Senate Bill S6688, the loan probably be a red state versus blue regulation, much of which is done is void, meaning that the borrower/ state issue, and it’s highly likely other at the local level. An elected state factor client does not have to pay it states will follow California and New official in your district may not back. York’s lead. The most likely result understand your business but has will be licensing requirements and the power to regulate and change it. In addition, New York passed a disclosure requirements. Although If you can, meet your elected local business truth in lending law, known factors and asset-based lenders state legislator or a key staff member as S5470A. This rule is similar to have mostly operated outside the and let them know how factors and California’s rule and requires a regulatory scope, simple licensing asset-based lenders help small busi- financing cost disclosure at the and rate disclosures, which are chal- nesses and entrepreneurs. inception for all finance offers under lenging, are things with which they $500,000. In addition, the trend toward can live. Problems will arise if states increased regulation must be Not to be outdone, the legislature try to enact something along the addressed in your document suite. in New Jersey put together Senate lines of what failed in New Jersey. In Part two of this article will discuss Bill 3616, which appears to have addition, each set of state laws also how to best protect yourself in your died in committee. This effort will result in an accompanying set agreements and related documenta- (and the drafting) shows what of regulations. If states legislate and tion. • can happen when legislators who regulate beyond licensing and rate are not friendly to business come disclosures, or give an enforcement together and regulate. The purpose group wide latitude similar to what of the law was to target “alterna- is happening in California, factors are tive business loans,” which are in danger of having to operate in a loosely defined as loans that rely patchwork of different and contra- dicting state laws.

30 The Commercial Factor | December 2020