TSL October 2023

Deep Dive Issue

EXPERTS SHARE THEIR KNOWLEDGE ON HEALTHCARE, STAFFING, RETAIL AND TRANSPORTATION

Sharing Knowledge

In this issue of TSL , we walk readers through the intricate world of lending to specific industries, including retail, healthcare, transportation and staffing. In today’s rapidly evolving financial landscape, understanding the unique challenges and opportunities within these industries is paramount, and we are excited to provide you with a deep dive into these critical sectors.

Niche lenders play a pivotal role in the success of many industries, for example transportation where many of the small businesses lack access to traditional financing. I hope you find this issue thought-provoking and educational. A special thank you to the authors for sharing their knowledge and insights.

Our community is unique in its camaraderie and sharing of knowledge, which is demonstrated at SFNet’s Annual Convention. It’s where industry titans and luminaries converge, showcasing their game-changing insights and strategies. It’s where deals are brokered, partnerships are cemented and the future of secured finance is shaped. I hope to see you there, November 15-17, in Orlando. Go to sfnet.com to register before October 11, to ensure your spot in the official Program Book.

The “war for talent” is just one of the many topics that will be addressed at the Annual Convention and in this issue we feature a deep dive into lending to the staffing industry. Turn to page 20 for Staffing: An Industry with Many Facets by Terry Keating of Access Capital.

Healthcare is an industry that is constantly changing. Lenders wishing to lend into the space need to develop expertise pertaining to the unique financial needs and challenges of the sector. On page 16, in Navigating the Future: Exploring Opportunities in Healthcare Asset-Based Lending, Jennifer Sheasgreen of Siena Healthcare Finance discusses the opportunities in this space.

While retail data reported at the mid-summer mark pointed to a strong labor market, steady consumer spending in certain categories and retail sales up from last year for several straight months, the data only tells one side of the story. The numbers are merely inching forward, as growth across many sectors has been sluggish, if not altogether flat. This year has been a mixed bag for the retail and credit market, and with continued volatility and an overall lackluster economic forecast, businesses and lenders must be prepared for any scenario.

On page 26, Cassie Rosenthal of Rosenthal & Rosenthal interviews four of her team members about T he State of Retail: How Did We Get Here and What’s on the Horizon?

Government contractors’ performance and lending

requirements can change suddenly due to financial regulations, acts of nature and geopolitical occurrences. On page 30, Carol Apicella and Richard Pollak delve into how lenders can ensure they are secured.

On page 38, George Thorson of Triumph covers the transportation factoring world, explaining how factoring remains a necessary and viable tool for smaller carriers who have limited access to other forms of credit.

Don’t miss the interview with Courtney Jeans, executive managing director and head of Regions Business Capital, on page 42. With nearly 30 years of experience in the ¬financial services industry, his career has focused on lending activities within the middle-market and large corporate sectors in both banking and specialty finance, where he has held positions in business development, portfolio management and risk management.

Finally, on page 44, our senior editor sits down with SFNet’s 2023 president, Jennifer Palmer, to reflect on her tenure and look back at SFNet’s many accomplishments this past year. I look forward to connecting with you at SFNet’s Annual Convention in sunny Orlando!

RICHARD D. GUMBRECHT SFNet Chief Executive Officer

COVER STORY

NAVIGATING THE FUTURE: EXPLORING OPPORTUNITIES IN HEALTHCARE ASSET-BASED LENDING P16

Navigating the Future: Exploring Opportunities in Healthcare Asset-Based Lending

Healthcare is an industry that is constantly changing. Lenders wishing to lend into the space need to develop expertise pertaining to the unique financial needs and challenges of the sector. This article explores the opportunities to lend into this space. 16

BY JENNIFER SHEASGREEN

FEATURE STORIES Staffing: An Industry with Many Facets

In May of 2022, when the author became CEO of Access Capital, the Company already had a long history of being a leading non-bank lender to the staffing industry. In this article, written with the help of Raphael Torres, head of business development, and Jessica Sanchez, director of marketing, Terry Keating will share some thoughts about the industry that he has learned through his journey over the past 18 months. 20 BY

TERRY KEATING

The State of Retail: How Did We Get Here and What’s on the Horizon?

While retail data reported at the mid-summer mark pointed to a strong labor market, steady consumer spending in certain categories and retail sales up from last year for several straight months, the data only tells one side of the story. The numbers are merely inching forward, as growth across many sectors has been sluggish, if not altogether flat. 26

FEATURED STORY

THE STATE OF RETAIL: HOW DID WE GET HERE AND WHAT’S ON THE HORIZON? P.20

BY CASSIE ROSENTHAL

Lending on Government Receivables and Contracts

Government contractors’ performance and lending requirements can change with the slightest turn due to financial regulations, acts of nature and geopolitical occurrences. Knowing you are secure in lending to, or financing, government contractors starts here. 30

BY CAROL APICELLA AND RICHARD POLLAK

Dynamic Advance Rates in a Specialty Finance Setting

While the focus of this article pertains to lenders to commercial and consumer finance companies, the principles described can be ascribed to trade receivables as well, particularly in seasonal businesses with dating terms or complex payment arrangements 34

BY MATT WILLIS

Transportation Factoring in a Freight Recession

Factoring for trucking companies and brokerages has skyrocketed in the last 10 years. An estimate on factoring company purchases is $90 billion annually. There are about 250,000 active for-hire carriers with 96 percent having six trucks or less. 38

BY GEORGE A. THORSON

Interview with Courtney Jeans, Head of Regions Business Capital

Courtney Jeans is executive managing director and head of Regions Business Capital. Jeans joined Regions Business Capital in January 2022. 42

BY MICHELE OCEJO

TSL Interview: SFNet 2023 President Jennifer Palmer Reflects on Year of Growth and Change

In this interview, she discusses her accomplishments and lessons learned. 44

BY EILEEN WUBBE

CROSS-BORDER FINANCE ESSAY TLC For Your Dutch Collateral: Some Practical Considerations

Earlier this year, SFNet announced its second Cross-Border Finance Essay Contest, sponsored by Goldberg Kohn Ltd. This essay won second place and focuses on how tweaking the borrower’s customer contracts can strengthen your position as secured lender. 48

BY CAMILLE VAN LIEBERGEN

SFNET COMMITTEE SPOTLIGHT Convention Planning Committee

This column highlights the hard work and dedication of SFNet committee volunteers. Here we speak with Don Clarke, president, Asset Based Lending Consultants and chair of SFNet’s Convention Planning Committee. 52

BY EILEEN WUBBE

SFNET MEMBER PROFILE

nFusion Capital: Fast, Creative and Optimistic

nFusion Capital is a private working capital finance company delivering customized financing solutions to small- and medium-sized businesses. 55

BY EILEEN WUBBE

Departments

The Secured Finance Network is the trade group for the asset-based lending arms of domestic and foreign commercial banks, small and large independent finance companies, floor plan financing organizations, factoring organizations and financing subsidiaries of major industrial corporations.

The objectives of the Association are to provide, through discussion and publication, a forum for the consideration of inter- and intra-industry ideas and opportunities; to make available current information on legislation and court decisions relating to asset-based financial services; to improve legal and operational procedures employed by the industry; to furnish to the general public information on the function and significance of the industry in the credit structure of the country; to encourage the Association’s members, and their personnel, in the performance of their social and community responsibilities; and to promote, through education, the sound development of asset-based financial services.

The opinions and views expressed by The Secured Lender’s contributing editors and authors are their own and do not necessarily express the magazine’s viewpoint or position. Reprinting of any material is prohibited without the express written permission of The Secured Lender

The Secured Lender, magazine of the asset-based financial services industry (ISSN 0888-255X), is published 8 times per year (Jan/Feb, March, April, May, June, September, October and November) $65 per year non-member rate, and $105 for two years non-member rate. SFNet members are complimentary.

Secured Finance Network 370 Seventh Avenue, Suite 1801, New York, NY 10001. (212) 792 -9390 Email: tsl@sfnet.com www.SFNet.com

Periodicals postage paid at New York, NY, and at additional mailing offices. Postmaster, send address changes to The Secured Lender, c/o Secured Finance Network, 370 Seventh Avenue, Suite 1801, New York, NY 10001

Editorial Staff

Michele Ocejo

Editor-in-Chief and SFNet Communications Director mocejo@sfnet.com

Eileen Wubbe Senior Editor ewubbe@sfnet.com

Aydan Savaser Art Director asavaser@sfnet.com

Advertising Contact: James Kravitz Business Development Director T: 646-839-6080 jkravitz@sfnet.com

DEPARTMENT INDUSTRY DEALS

1st Commercial Credit, LLC, Factor

$100.0K Temp staffing agency based in Louisiana that services the hotel industry

Aequum Capital, Lender Non-bank $9.0M Industry-leading, technology-focused independent online pharmacy, Midwest

$7.3M Manufacturer of specialty nonwoven product solutions for the automotive, industrial and consumer markets, based in Texas

Business Capital, Lender

Business Capital, Lender

Argentem Creek Partners, Lender

Manufacturer and distributor of industrial chemicals, Texas

$10.0M Green waste disposal company, Florida

SP Partners, i80, the Victorian Government, and iPartners, Lender

Austin Financial Services, Inc. (AFS), Lender

$20.0M Salmon, a consumer FinTech company

$250.0M OppFi Inc., a mission-driven fintech platform

$130.0M Lighter Capital

$4.0M Private equity-owned contract beverage manufacturer based in the Pacific Northwest

Bank of America, N.A., Administrative Agent Bank $500.0M Griffon Corporation, a diversified management and holding company that conducts business through wholly-owned subsidiaries.

Bank of America, N.A., Administrative Agent, Apterra Infrastructure Capital LLC, Syndication Agent, Sole Bookrunner

Bank, Nonbank $500.0M OPAL Fuels Inc., a vertically integrated producer and distributor of renewable natural gas (RNG) and renewable electricity

Bank of America, N.A., Lender, Truist Bank, Administrative Agent Bank $350.0M Capteris LLC, a provider of mid and large ticket equipment finance solutions targeting the midmarket, large corporate, and financial sponsor segments

Bastion Management, Agent Non-bank $100.0M Okinus, which offers point-of-sale financing for a wide range of retail consumer products, Pelham, GA

Credit Facility Increase

ABL facility, consisting of an AR & inventory revolver, with an equipment term loan

Home Goods Revolving Credit Facility Increase

Energy Senior Secured Credit Facility

Finance Credit Facility

Other Senior Debt Investment of $40 Million with Accordions up to $100 Million

BHI, Lender Bank $10.0M AM West, a Medipower Group company Real Estate Senior Revolving Credit Facility and Real Estate Term Loan

Blackstone’s Asset-Based Finance (“ABF”) Group, Lender Bank $1.1B Triad Financial Services, a subsidiary of ECN Capital Corp., a leader in financing solutions to manufactured housing dealers across the U.S

Blue Owl, Administrative Agent, Lead Arranger Non-bank $400.0M PCF Insurance Services, a leading full-service consultant and insurance brokerage firm, Lehi, UT

BMO, Agent, Sole Bookrunner Bank $100.0M The Merchant Opportunities Fund, a Vancouver-based private debt fund focused on investing in specialty finance portfolios

Briar Capital Real Estate Fund, Lender Non-bank $3.8M Manufacturer of wood products for the arts and craft industry

Cambridge Savings Bank (CSB), Lender Bank $2.6M White Wood Kitchens, the well-known kitchen and project management company in Cape Cod, MA

Cambridge Savings Bank (CSB), Lender Bank $2.6M White Wood Kitchens, the well-known kitchen and project management company, Cape Cod, MA

Finance Financing

Insurance Incremental Debt Financing

Finance Revolving Debt Facility

Manufacturing Commercial Real Estate Loan

Home Goods Financing

Home Goods Financing

Cambridge Savings Bank (CSB), Lender Bank $10.0M Leadpoint Business Services, a fullservice workforce solutions company, Phoenix, AZ

$5.0M Leading mechanical contractor based on the West Coast

Construction Funding

Staffing Revolving Line of Credit CapitalPlus Financial Services, Lender

CapitalPlus Financial Services, Lender Non-bank $2.0M Renowned concrete contractor based in New York Industrial Funding Carlyle, Lender Non-bank $175.0M New Regency, a leading independent, founder-owned global entertainment company that creates and distributes film, television and documentary content across all platforms

Media & Entertainment Term Loan

Food & Beverage Accounts Receivable Line of Credit Celtic Capital Corporation, Lender Non-bank $740.0K California-based tank truck hauler of gasoline, diesel, oil and other related products

Celtic Capital Corporation, Lender Non-bank $1.0M Sea salt importer

Trucking Consisting of a $500,000 Accounts Receivable Line of Credit and a $240,000 Equipment Loan

CIBC Innovation Banking, Lender Bank $18.0M Bidgely, a leading provider of artificial intelligence (AI) powered energy intelligence solutions

Clear Haven, Lender Non-bank $100.0M OneBlinc, a leading fintech company specialized in providing payroll loans for Federal employees

Comvest Credit Partners, Administrative Agent Non-bank $635.0M Beyond Finance, specializing in success fee-based debt resolution services

Energy Growth Financing

FinTech Credit Facility

Financial Services Senior Credit Facility

company whose portfolio of wholesale food distribution and retail grocery store brands includes Merchants Distributors, Souto Foods, Lowes Foods and W. Lee Flowers & Company, Hickory, NC

Sachs, Documentation Agent; Citi, Documentation Agent; HSBC Innovation Banking, Joint Lead Arranger; J.P. Morgan Chase Bank, Administrative Agent, Joint Lead Arranger

Golub Capital, Administrative Agent, Joint Bookrunner, Lead Arranger

Partners, a Denver-based private equity firm specializing in corporate divestitures and special situations

Power Holdings, Inc., a developer of advanced lithium-ion energy storage solutions for electrification of commercial and industrial equipment

support of a sponsor-backed specialty pet food manufacturer

maintenance contractor to support the acquisition of rolling stock and other equipment assets

Holdings, Inc., a leading electric vehicle (EV)

$700.0M Risk Strategies, the 9th largest privately held US brokerage firm offering comprehensive risk management advice, insurance and reinsurance placement

a leader in the discovery and development of novel smallmolecule therapeutics to benefit people with rare diseases of the immune system

Tallac Therapeutics, a privately held biopharmaceutical company harnessing the power of innate and adaptive immunity to fight cancer

Wholesalers, LLC (dba The Mazel Company), a wholesale distributor of closeout merchandise primarily consisting of housewares, toys, and hardware, Solon, OH

boring company, Arizona

company, Illinois

company, Quebec

sales company, California

company, British Columbia

company, Michigan

Pharmaceuticals, Inc., a fully integrated generic injectables company based in Chicago

Medicine, a clinical stage biopharmaceutical company

KBC Bank, Lender; BNP Paribas, Lender; Banque Populaire Grand Ouest, Lead Arranger; Caisse Régionale de Crédit, Agent, Lead Arranger

Keybanc Capital Markets Inc., Joint Lead Arranger; Cadence Bank, N.A., Joint Lead Arranger; Citizens Bank, N.A., Joint Lead Arranger; KeyBank National Association, Administrative Agent

Bank $112.0M EKINOPS, leading provider of telecommunications solutions for telecom operators and enterprises

Bank $150.0M Amplify Energy Corp., an independent oil and natural gas company

LSQ, Lender Non-bank $30.0M New York manufacturer, packager and distributor of pharmaceutical and consumer healthcare products

Magnetar Capital, Lender; Blackstone Tactical Opportunities, Lender; Coatue, Lender; DigitalBridge Credit, Lender; BlackRock, Lender; PIMCO, Lender; Carlyle, Lender

Non-bank $2.3B CoreWeave, a specialized cloud provider of large-scale GPU-accelerated workloads

MidCap Business Credit, Lender Non-bank $16.0M E.R. Wagner Manufacturing Company, a 120+ year old family held business which manufactures metal hinges and stampings, tubular components, casters and wheels,

MidFirst Business Credit (MFBC), Lender Bank

MidFirst Business Credit (MFBC), Lender Bank $9.5M

MidFirst Business Credit, Lender Bank $25.0M

Alcrete Industries, LLC, a manufacturer of precast concrete products used in new construction projects, Pell City, AL

Chase Products Co, a manufacturer and leader of aerosol solutions serving diverse end markets, Broadview, IL

iT1 Group, a value-added reseller of computers and hardware and custom software solutions, Tempe, AZ

Mitsubishi HC Capital Canada, Lender Non-bank $55.0M Progressive Capital Equipment Finance Inc.'s wholly owned subsidiary, Dynamic Capital Equipment Finance

Mitsubishi UFJ Financial Group, Administrative Agent Bank $100.0M Sprout Social

Telecommunications Credit Line

Oil & Gas Senior Secured Reserve-based Revolving Credit Facility

Manufacturing Credit Facility

Technology Debt Financing Facility

Manufacturing Asset-Based Credit Facility

Construction Working Capital Facility

Manufacturing Working Capital and Term Facility

Advertising Working Capital Facility

Equipment Funding Facility

Technology Credit Facility

National Westminster Bank Plc, Lender; National Australia Bank Limited, Lender; MUFG Bank, Ltd., Lender; HSBC Bank USA, Lender; The Bank of Nova Scotia, Senior Managing Agent; Societe Generale, Senior Managing Agent; BNP Paribas, Joint Lead Arranger, Senior Managing Agent; National Bank of Canada, Joint Lead Arranger; Banco Santander, S.A., New York Branch, Joint Lead Arranger; Canadian Imperial Bank of Commerce, New York Branch, Joint Lead Arranger; Desjardins Group, Mandated Lead Arranger; KeyBanc Capital Markets Inc., Joint Lead Arranger; Export Development Canada, Mandated Lead Arranger; Bank of Montreal, Chicago Branch, Joint Lead Arranger; Natixis CIB, Mandated Lead Arranger; Coöperatieve Rabobank U.A., New York Branch

healthcare products company

and distributor of military, law enforcement, public safety and outdoor apparel and equipment, Georgia

leading global producer of renewable fuels, distiller grains and alcohols

a female-founded, women's lifestyle brand that offers elevated essentials including bras, underwear, activewear and more

Labs, the only low-code app building platform exclusively designed to deliver a digital campus and workplace experience

the leading digital photo frame and smart calendar brand

a division of First Citizens Bank,

Settle, the leading cash-flow management platform

Synovus Bank, Lender Bank $45.0M Breakout Capital, a leading fintech company simplifying access to capital for small businesses

TradeCap Partners, Lender Non-bank $1.0M Aerospace parts distributor based in Florida

Partners, Lender Non-bank $1.5M Northeastern-based consumer packaged goods company

TradeCap Partners, LLC, Lender Non-bank $9.0M Industrial equipment manufacturer

Tradewind Finance, Lender Non-bank $700.0K Frozen seafood trader, Hong Kong

Trinity Capital Inc., Lender Non-bank $12.0M Delphinus Medical Technologies, Inc., a medical imaging company that has developed SoftVue™, a dense breast screening innovation

Trinity Capital Inc., Lender Non-bank $20.0M MacroFab, the comprehensive manufacturing platform for building electronics from prototype to high-scale production.

United Capital Investments London, Ltd., Lender Non-bank $50.0M

Lottery.com, Inc., a leading technology company that is transforming how, where and when lotteries are played

& Beverage Export Factoring Facility

Medical Supplies Growth Capital

Growth Capital

Credit Facility

Versant Funding LLC, Factor Non-bank $4.8M Commercial bakery which serves major grocery chains Food & Beverage Non-Recourse Factoring Transaction

Victory Park Capital, Lender Non-bank $100.0M Klar, S.A. de C.V. (Klar), the Mexico Citybased digital financial services platform

Services Credit Facility

Access Capital, Inc., Announces Alexandra Hough as Legal and Administrative Coordinator

Alexandra Hough brings with her valuable experience as a paralegal at Chaves Perlowitz Luftig LLP. She is a graduate of the University of Delaware and is now attending New York Law School’s 4L Part-time Evening Program. In her role, Hough will provide support to Access Capital’s origination and account management departments and will be an active participant of Access Capital’s Management Committee.

Berkshire Bank Welcomes David Coughlin, SVP, Private Banking

David J. Coughlin will be responsible for new business development in the Boston market and supporting private banking clients with a full suite of financial solutions tailored to help them reach their individual goals. He brings more than 30 years of extensive experience in the financial services industry within the Boston area.

Blank Rome Assembles Team of Leading Attorneys to Open Dallas Office

Blank Rome LLP announced the opening of a new office in Dallas—the firm’s 15th office and second in Texas—with the addition of seven attorneys. Aligning with Blank Rome’s core strengths, the Dallas team is a powerhouse combination of leading corporate, real estate, and finance attorneys with national practices. The new office is located at The Crescent in Uptown. Joining as partners are:

Steven R. Block , Dallas office co-chair and partner, Corporate, M&A, and Securities Group, who joins from Block & McNeill, LLP; Jason S. Luter , Dallas office co-chair and partner, Corporate, M&A, and Securities Group, who joins from Faegre Drinker Biddle & Reath LLP; Mark W. Harris , partner, Finance Group, who joins from Alston & Bird LLP; Justin G. Mapes , partner, Real Estate Group, who joins from Locke Lord LLP; Christopher M. McNeill , partner,

Corporate, M&A, and Securities Group, who joins from Block & McNeill, LLP; and Michael B. Thimmig , partner, Finance Group, who joins from Alston & Bird LLP. Also joining is Robert C. Davidson as associate in the Corporate, M&A, and Securities Group from Block & McNeil, LLP, along with a paralegal and an office coordinator.

CIBC Adds Expertise to Asset-based Lending Team With new Hire

CIBC announced that Cindy Jamroziak , managing director and senior underwriter, has joined its Assetbased Lending (ABL) team. Jamroziak brings more than 30 years of industry experience to CIBC’s ABL underwriting team. She will support the ABL group’s business development team by reviewing and proposing asset-based lending solutions to prospective new clients.

Citizens Names Mark Lehmann as California President

Citizens announced that veteran banking executive Mark Lehmann , chief executive of JMP Group, has been named as its California president to accelerate growth in a key market where the bank has recently added some of the state’s top private bankers.

Thomas Siska Named SVP, Head of Factoring at eCapital, Continuing Trend of Top-Level Hires

eCapital Corp. announces a key addition to its leadership team. Thomas Siska has accepted the role of senior vice president (SVP), head of Factoring, further strengthening eCapital’s commitment to securing top-tier talent and enhancing its market position.

eCapital Taps Tim Peters to Take Helm of ABL Group

eCapital Corp. announced the appointment of Tim Peters to the role of president, head of the Asset-based Lending (ABL) Group. This strategic move underscores the significant role of the ABL portfolio within the organization

and the remarkable growth the division has achieved over the past year. With his extensive industry expertise, Peters will be responsible for leading the

Additionally, Steven Silver will assume the role of head of Sales, ABL, drawing from his track record of delivering exceptional results and a strong commitment to client satisfaction.

Encina Lender Finance Continues Leadership Expansion with Addition of Four Seasoned Industry Veterans

Encina Lender Finance, LLC (ELF) announced the continued expansion of its leadership team with the addition of four seasoned industry veterans. ELF is joined by Rick Snyder as head of Originations for the Consumer Vertical, Aharon Tarnavsky as head of Originations for the Commercial Vertical, Kathy Myers as managing director of Risk, and Megan McKinless as director of Syndications.

Gibraltar Business Capital Hires

Lending Veteran as SVP, Underwriting Manager

Gibraltar Business Capital is proud to announce it has hired S.N. Thomas , a lending expert with 25+ years’ experience, as an SVP and underwriting manager.

The new underwriting manager position comes on the heels of GBC bringing on Jim Marasco as head of Originations to further position the organization for growth.

Diversified Financial Services Firm

Hilco Global Hires David Kurtz as Vice Chairman - Chief Strategic Officer

Hilco Global announced that veteran Lazard banker David Kurtz will join the firm, serving as vice chairman and chief strategic officer. Kurtz is a well-known and highly regarded deal maker for the past 40 years and was most recently at the financial advisory firm Lazard where he had been a vice chairman of U.S. Investment Banking and head of Global Restructuring since 2012, as well as a member of the global executive committee.

The Huntington National Bank Names

Vijay Konduru Executive Vice President, Chief Marketing Officer

Vijay Konduru will lead Huntington’s marketing organization, overseeing the bank’s marketing strategy and longterm vision. He will be accountable for competitive intelligence, marketing operations, transformation, digital marketing acquisition and customer communications in a manner that drives consistent business growth. Konduru will be based in Columbus, OH.

JPalmer Collective Expands Team of Finance Industry Leaders

JPalmer Collective has expanded its team of finance industry veterans with the appointment of Celina Rambaran as senior vice president of Operations. Rambaran will play a critical role in shaping JPalmer’s operational strategy, building strong customer relationships and maximizing the company’s performance. She has 15 years of experience in alternative finance at eCapital and the former Gerber Finance (acquired by eCapital.)

Legacy Corporate Lending Expands Team with Addition of Anthony DiChiara as Managing Director of Originations

Legacy Corporate Lending, LLC announced that Anthony DiChiara has joined the firm as managing director of Originations. DiChiara will be based in Chicago and will be responsible for leading the origination and structuring of new loan transactions in the Midwest.

Lighthouse Welcomes Austin Campbell as Collateral Analyst

and Marketing Associate

In this role, Austin Campbell will support the operations, account management, and marketing functions at Lighthouse. Campbell is a recent graduate of High Point University where he earned a B.S.B.A. in finance with a minor in sales.

Campbell is in Greensboro, NC and can be contacted as follows: Office (336) 272-9766; Mobile: (423) 827-4554 acampbell@lighthousefinancial.net.

New Talent Bolsters Loeb’s Team: Carolyn McClure and Matt DelGuidice Join the Fold

Loeb announced the addition of two seasoned professionals, Carolyn McClure and Matt DelGuidice , to its team. McClure brings over 25 years of experience crafting innovative financing solutions for companies across the spectrum.

DelGuidice comes aboard with over 20 years of experience working together with manufacturers of all sizes across North America.

MUFG Bolsters Sponsor Coverage Capabilities with New Hire

Mitsubishi UFJ Financial Group (MUFG) announced the expansion of its Sponsor Coverage effort with the hiring of Pam Bruno as managing director.

Bruno will be responsible for covering Private Equity Financial Sponsors for the bank. Based in New York, she will report to Robert Smock, head of Sponsor Coverage & Advisory at MUFG. Bruno has more than 25 years of financial services experience and joins MUFG from Santander, where she held various roles for more than a decade. Most recently, she was head of Financial Sponsors for the U.S. and Canada.

Faycal Lhamidi Joins Peapack

Private as Senior Managing Director, Commercial Private Banker

Faycal Lhamidi joins a team of senior level commercial bankers hired to help grow Peapack Private and its commercial and industrial business into the New York market. He provides customized banking solutions to a diverse set of medium and large-size enterprises to help them achieve their long-term financial goals.

Parker Hudson Strengthens Litigation Team with Three New Additions in Atlanta

Parker, Hudson, Rainer & Dobbs LLP strengthened its Litigation team recently with the addition of two seasoned of

counsel, R. David Gallo and Drew Stevens, and associate E. Wylly Killorin III

Prestige Capital Continues to Expand its Business Development Team and Welcomes Mark J. Simshauser

Prestige Capital announced that Mark J. Simshauser has joined its team as senior director – Northeast US responsible for building and driving business development throughout the Northeast region. Simshauser brings over 20 years of SME and middle market financing experience and began his career in 1999 at FINOVA Capital.

Zachary Bullock Named Senior Vice President, Commercial Banking Market Leader of Central PA Based in PNC’s Lancaster office, Zachary Bullock will oversee PNC’s Commercial Banking team in the market, which serves businesses with annual revenues between $5 million and $100 million. He succeeds Milton Hefft, who retired at the end of July after 20 years with PNC. In this role, Bullock will lead a team of Central Pennsylvania-based relationship managers to deliver PNC’s full suite of lending solutions, cash management services, risk management strategies and innovative ideas.

Rosenthal & Rosenthal Promotes Derek Sigler

Rosenthal & Rosenthal has promoted Derek Sigler to EVP, Northeast Region co-portfolio manager. Sigler has been at Rosenthal for more than 10 years.

Scott Blaeser Joins SLR Business Credit as Senior Vice President of Business Development

Scott Blaeser is the newest addition to the SLR Business Credit team. Based in Colorado, he will assist in expanding the Company’s presence by providing asset-based lending to small to middlemarket businesses. Blaeser worked with a large regional bank as a senior vice president, Business Development, where he established a lending presence in

Denver with support for Utah, Arizona, Kansas, and Missouri.

SLR Business Credit Names Jan Ibey Senior Vice President of ABL Business Lending

Jan Ibey is a seasoned asset-based (ABL) finance executive with over 25 years of debt capital raises for lower and mid-market companies, providing business capital solutions to high-growth companies, as well as those in turnaround. In her role, Ibey will be providing working capital solutions to accelerate business growth and maximize value, for strategic and organic growth and/or acquisitions.

Third Eye Capital Announces Appointment of David Steele as President and Chief Operating Officer

Third Eye Capital, Canada’s leading provider of asset-based financing solutions to underserved or overlooked companies, is pleased to announce the appointment of David Steele as president and chief operating officer, effective August 15, 2023.

Triumph Appoints Jason Heilig Chief Technology Officer of Factoring Division

Jason Heilig will continue to report to Tim Valdez, president of Triumph’s factoring division. Heilig officially joined Triumph in March of 2020, however, he has been an integral part of Triumph’s development and IT teams since 2016, when he began working as a contractor.

US Capital Global Expands Its Presence in Asia with Appointment of Vice President Sal Saqeb

US Capital Global appointed Sal Saqeb as vice president. Saqeb will play a leading role in expanding the group’s market presence in Asia and delivering exceptional value to its international clients. Prior to joining US Capital Global, Saqeb served as the head of VIP Services for Huobi, one of the world’s top crypto exchanges.

VION Investments Names Morten Kucey as Senior Managing Director

Morten Kucey will play a key role in expanding VION’s relationships and product offerings across the industry to originate and help structure new opportunities. Kucey’s previous roles include senior positions at Rise Line Business Credit, an asset-based lender, and SFNet and over 20 years with SB360 Capital Partners. Kucey can be reached at (516) 521-6439 and at mkucey@ vioninv.com.

Navigating the Future:

Exploring Opportunities in Healthcare Asset-Based Lending

BY JENNIFER SHEASGREEN

Healthcare is an industry that is constantly changing. Lenders wishing to lend into the space need to develop expertise pertaining to the unique financial needs and challenges of the sector. This article explores the opportunities to lend into this space.

Healthcare is an industry sector that continues to grow and highlights a promising avenue for lending institutions to financially aid in the growth of hospitals, medical facilities, and other ancillary providers. Lending into the healthcare space not only provides a viable investment option, but contributes to improved patient care and outcomes and can play a crucial role in shaping the future of healthcare delivery.

National Healthcare Expenditures (NHE) grew 2.7% to $4.3 trillion in 2021 and accounted for 18.3% of the Gross Domestic Product (GDP), according to the Centers for Medicare and Medicaid Services (CMS). Of that amount, Medicare and Medicaid spending accounted for 21% and 17% respectively, amounting to $1,634.8 billion. By 2031, healthcare is projected to account for 19.31% of the GDP.

In an ever-growing sector, lenders that specialize in developing expertise in the unique financial needs and challenges of the sector can help to tailor their lending solutions to better meet the demands of healthcare organizations. Specifically focusing on asset-based, working capital lending, we will explore the opportunities to lend into this space.

Increasing Demand for Healthcare Services

COVID’s challenges have sparked new opportunities for the delivery of healthcare. McKinsey & Company reported that scaled-up innovation was prompted by the pressure the pandemic put on the healthcare system. One example of this is the expansion of telehealth. Prior to the pandemic, Medicaid beneficiaries had the flexibility to use telehealth, Medicare beneficiaries did not. During COVID, HHS (Health and Human Services) waived some of those restrictions and expanded coverage to Medicare beneficiaries. That coverage has been extended until December 31, 2024, with providers hoping it will be extended indefinitely.

Additionally, the use of AI (Artificial Intelligence) will have a measurable influence on the delivery of healthcare services. According to Becker’s Hospital Review, in 10 years there will be expanded outpatient services that include technology that will be deployed in new and innovative ways, with a focus on increasing home-care setting solutions.

From an economic perspective, the outlook for employment in healthcare occupations is anticipated to grow 13 percent from 2021 to 2031, much faster than the average for all occupations, as reported by the U.S. Bureau of Labor Statistics. Where does all this lead? For healthcare asset-based lenders, it’s an opportunity.

Why Healthcare Lending is Ripe with Opportunities

Hospitals and health systems just exited a multiyear battle with COVID-19, resulting in a lack of pharmaceuticals and supplies, increased costs of labor, and staffing shortages. The CARES Act government support programs such as HHS (Health & Human Services) stimulus funding, PPP (Paycheck Protection Program), AAPP (Accelerated Advance Payment Program), and ERTC (Employee

Retention Tax Credit) helped to ease the financial burden brought on by COVID, but those programs have just about run dry.

Now dealing with inflationary pressures, healthcare providers are at the battle front again continuing to struggle with low margins. During COVID, hospitals, health systems, and providers were able to rely on the government programs which, in turn, helped to solidify liquidity positions. Operational and financial difficulties have led to lower liquidity positions and increased bank loan covenant defaults, causing many healthcare providers to seek out a refinance or restructure of their working capital loans. This, combined with several recent bank failures, points to an opportunistic time for asset-based lenders to provide working capital loans with more flexible structures while creating an attractive yield opportunity for investors.

Asset-based lenders often have advantages over traditional banks due to the in-depth focus on collateral value. Though factors such as creditworthiness, financial history, and liquidity play an important part in the overall credit evaluation for both types of lenders, the reliance on each component is weighted differently. Additionally, non-bank asset-based lenders aren’t subject to FDIC regulation and though they must comply with lender lineconcentration limits, those limits are often tailored to the specific type of loan.

As a result of these factors, asset-based lenders can lend to companies that may not be considered creditworthy by traditional bank institutions and those that are creditworthy may look to an asset-based lender to afford more availability in their borrowing capacity. It is important to note that each route, bank or non-bank, has its own pros and cons and it’s the borrower that ultimately needs to determine what is important for their business.

Current Economic Landscape and Implications for Healthcare Lending

As inflationary pressures continue and interest rates have risen this year, it is likely that we’ll see banks further tightening lending standards in Q4 ‘23 and Q1 ‘24 allowing opportunities for nonbank lenders to gain more market share, despite demand for loans declining. It is projected that there will be opportunities for refinance and restructuring of diminished bank credits to a more suitable nonbank structure, primarily due to the rapid rise in interest rates and labor and supply expenses.

Healthcare lenders with expertise in government regulations will be a more strategic partner for healthcare providers looking to maximize their most liquid asset, accounts receivable, and

JENNIFER SHEASGREEN Siena Healthcare Finance

that is because the lender plays a role in ensuring there is compliance. Lending to the healthcare sector requires knowledge of government regulations. The anti-assignment provisions, which prevent the government from making payments under Medicare and Medicaid programs to anyone other than the licensed provider, make obtaining lender control of cash more challenging. HIPAA (Health Insurance Portability and Accountability Act) has stringent regulations about the sharing of PHI (Protected Health Information). Healthcare lenders should be cognizant of what data points are included in their claim detail that supports borrowing base calculations. Most often, PHI is scrubbed from borrower files prior to receipt by the lender. Healthcare lenders that don’t have safeguards in place which ultimately protect the lender and the borrower, could find that their non-compliance results in government-related monetary penalties payable by the lender.

How Healthcare Lending Acts as a Bridge

The time it takes for healthcare providers to bill and collect varies significantly by sector and based on factors such as type of service, the multiple components of billing, insurances processes, and the efficiency of the provider’s billing practices. Based on these complexities, healthcare providers may have a lengthy gap between billing and collections while needing to cover payroll, inventory, and supplies.

On average, billing and collection cycles can range from several weeks to a few months and, in some cases, providers may only be able to bill once a month for services.

Revolving lenders bridge the gap by providing working capital to healthcare companies during the interim period it takes to collect on healthcare accounts receivable. Additionally, lending on unbilled accounts receivable where services have been performed. Healthcare asset-based lenders have longer cut-off periods for accounts receivable inclusion in borrowing bases, often going to out 150 days on the accounts receivable aging and, in some cases, 180 days, depending upon the sector. Advance rates are typically 85% of the net collectible value of the accounts receivable.

Additionally, understanding of the revenue cycle of different healthcare segments allows for a crafted approach to structuring borrowing bases and, in some cases, eligibility around unique revenue streams such as Upper Payment Limit (UPL), a government program that is handled differently, depending upon the state, can serve as additional borrowing capacity and may provide an opportunity for improved yields for the lender.

Conclusion

Healthcare lending presents opportunities for financial gain, diversification, community impact, and the opportunity to deploy industry expertise. However, it’s important for lenders to thoroughly understand the unique aspects of the healthcare sector and manage associated risks effectively.

As healthcare programs become more diverse and complex, the role of healthcare lending becomes even more crucial. Collaboration between lenders that have a deep understanding of the healthcare

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Key Points

The healthcare sector will continue to grow despite inflationary pressures

The demand for healthcare services will continue to increase

A tightening of bank lending standards make it an opportunistic time for healthcare lenders

Lending to the healthcare sector requires knowledge of government regulations

landscape, and healthcare providers that aspire to grow and excel, can lead to successful outcomes, which may translate to better patient care.

Jennifer Sheasgreen is the president of Siena Healthcare Finance and co-founded the division in 2019. Sheasgreen has over 25 years in healthcare finance is a recognized leader in the healthcare lending space, having started two, profitable, de novo ABL divisions. She is certified as a Fellow through the Healthcare Financial Management Association.

Asset-based lending bridges the gap between lengthy healthcare billing and collection cycles

One must comprehend the whole picture before arriving at conclusions.

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Because things aren’t always as they seem things aren’t always as seem

Staffing: An Industry with Many Facets

BY TERRY KEATING

In May of 2022, when the author became CEO of Access Capital, the Company already had a long history of being a leading non-bank lender to the staffing industry. In this article, written with the help of Raphael Torres, head of business development, and Jessica Sanchez, director of marketing, Terry Keating will share some thoughts about the industry that he has learned through his journey over the past 18 months.

The staffing industry has many dimensions/layers, and I certainly cannot capture every permutation here. These many aspects present opportunities and challenges for lenders. The first challenge is simply understanding the matrix of segments and business models within the staffing ecosystem. And just about when you think you’ve figured out all the permutations, new ones come on the scene, and others become obsolete. Then there are acronyms and terminology unique to this sector, and we’ll try to help with some of that here too.

Next, industry participants must understand the many legal, regulatory and tax considerations. Some on the federal level, but many more on the state and sometimes local level. Again, ever-changing, there are also the dynamics of the labor markets, demand, and supply. Ever-shifting business demand, economic conditions, politics, global events, management philosophies at the customers, and much more contribute to an often-bewildering landscape.

If that isn’t enough, the pandemic and post-pandemic conditions and reactions of both employers and employees further blur historical trends that one might look to in an effort to understand this business. So, this isn’t easy or for the faint of heart.

Primary Segments

First, let’s explore some of the sub-segments commonly identified within staffing.

Information Technology (IT): software development developers, network engineers, IT project managers, data scientists, cybersecurity experts, and more.

Healthcare: nurses, doctors, allied health professionals, medical technicians, and non-clinical staff for hospitals, clinics, long-term care facilities, and other healthcare institutions.

Industrial: production operators, assembly workers, forklift operators, maintenance technicians, and warehouse workers.

Office/Clerical: administrative assistants, office managers, receptionists, data entry clerks, and customer service representatives.

Professional/Managerial: roles that require specialized skills or education, such as financial analysts, project managers, engineers, scientists, attorneys, and accountants.

Marketing/Creative: graphic designers, copywriters, marketing coordinators, digital media specialists, and creative directors.

Education: teachers, teaching assistants, school administrators, and support staff.

Hospitality: chefs, wait staff, hotel managers, and housekeeping staff at hotels, restaurants, event venues, and other hospitalityrelated businesses.

Business models

Next, we’ll explore some of the business models that exist within the broader staffing industry. Keep in mind that they can frequently overlap, and/or companies can employ multiple models.

Temporary Staffing: providing workers to cover short-term needs such as seasonal spikes in demand, employee absences, or specific projects. The workers remain employees of the staffing firm, which handles their payroll, benefits, and other HR functions.

Contract Staffing: providing workers for a specific contract period like temporary staffing. This is often for project-based work or positions requiring a specialized skill set.

Temp-to-Perm (or Contract-to-Hire): providing temporary or contract workers with the possibility of a permanent position if they perform well and if there’s an ongoing need for the role.

Permanent Placement (or Direct Hire): identifying, screening, and selecting candidates for permanent roles.

Recruitment Process Outsourcing (RPO): The client outsources the entire recruitment process or parts of it to the staffing firm. This may include job postings and candidate screenings, interviews, and onboarding.

Managed Services (or Managed Service Provider – MSP): The firm manages all or part of a client’s workforce in this model. This can include sourcing and managing staffing vendors and all aspects of the hiring process, from job requisition to payment, but the staff remain employees of the underlying firm.

Professional Employer Organization (PEO) or Employer of Record (EOR): The firm assumes the HR functions for the client, including payroll, benefits administration, and compliance with employment laws, and becomes the legal employer of the client’s workforce.

Solutions-based staffing services, or SOW (Statement of Work), The firm provides not just individual workers, but a complete solution for a specific project or task. Instead of supplying individuals to fill job vacancies, solutions-based staffing involves delivering a complete project. Examples are specific IT projects, marketing campaigns, audits, or similar.

Workers Compensation Insurance

Another critical aspect to understand are the risks associated with workers’ compensation, in general, and with individual companies. Risks and challenges associated with worker’s compensation come in several areas.

Staffing firms often supply employees to various industries, such as construction or manufacturing, where the risk of workplace accidents and workers’ compensation claims are often higher, as are the premiums. If staffing firms inaccurately classify their workers, they might have insufficient coverage and incur penalties and related

TERRY KEATING Access Capital

unexpected costs. Or they may be overpaying for the coverage.

Another important aspect is managing payroll tax withholding, reporting and payment. Again, failure to correctly manage these obligations can have severe ramifications. Unpaid payroll taxes can result in tax liens being filed against a company’s assets. There can also be Trust Fund Recovery Penalties, and company officers and others can be personally liable if payroll taxes are unpaid.

Size Range

The staffing industry is highly fragmented, with a few large players and many medium and small firms, ranging from small boutique agencies with a few employees and revenues in the hundreds of thousands of dollars to large multinational firms with thousands of employees and billions of dollars in revenues.

According to Staffing Industry Analysts, post-pandemic revenue for the industry is estimated to be $218,800,000,000, which was up 17% in 2022, estimated to be down 3% in 2023 and predicted to grow 2% in 2024. Breaking this down, the American Staffing Association estimates there are 25,000 staffing agencies in the United States. These firms are estimated to employ 16,000,000 workers, 40% of which occupy higher-skilled jobs. In terms of revenue, the largest firm accounts for only 5.2% of that total. There are 251 firms that report revenue exceeding $100,000,000, and these firms account for 77% of the overall industry estimated revenue.

As staffing agencies grow, they often encounter growth barriers or inflection points that require them to adapt and evolve, with specifics varying depending on factors such as industry focus, geographic market, and business model.

The following are some of the most common inflection points for growing staffing firms.

$1-2 million level, many staffing firms face the challenge of moving beyond the founder-led stage with limited resources and management teams.

$10 million level, firms are implementing more sophisticated systems and processes, develop a more robust sales and marketing function, and manage a larger workforce.

At the $50 million level, staffing firms start to face challenges related to scale, multiple office locations, diversifying services or industry focus, dealing with more complex regulatory and compliance issues, and competing with larger firms for clients and candidates.

At the $100 million level and beyond, staffing firms manage large, complex, and potentially international organizations involving additional complex issues like corporate governance, strategic planning, brand management, and mergers and acquisitions.

Industry Trends

Staffing, like much of the economy, and perhaps more so because of the underlying industry span, is always rapidly evolving and shifting. In this section we’ll highlight a few of the current trends.

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Key Points

Highly complex industry with many segments, sub-segments, and business model permutations.

Significant regulatory and tax considerations at the Federal, State, and Local levels

Industry for all-seasons

Highly fragmented with 25,000+ businesses

A significant portion of U.S. employment and GDP:16,000,000 jobs, $218,000,000,000 of revenue.

Increasing Use of Technology: The staffing industry has seen increased use of technology in recent years. This includes the adoption of AI and machine learning to automate the recruitment process and more effectively match candidates with job openings. Digital platforms/ mobile apps have also increased, providing a more efficient way for workers and employers to connect.

Rise of Remote Work: The pandemic accelerated the shift towards remote work, with significant implications for the staffing industry. With fewer geographic constraints, there has been a broadening of talent, but it also increased the competition for talent and required staffing firms to adapt their methods for sourcing, vetting, and onboarding candidates.

Increased Demand for Flexible Staffing Solutions: There has been an increasing demand for flexible staffing solutions as companies look to become more agile in response to rapidly changing market conditions.

Focus on Diversity, Equity, and Inclusion: Companies increasingly recognize the importance of DEI and rely on staffing firms to help them build more diverse workforces. This has required staffing firms to reassess their recruitment practices and to develop new strategies for attracting and retaining diverse talent.

Expansion of Services: Many staffing firms are broadening their services to become more broadly based totaltalent solutions providers, including offering services like employer branding, talent management, career transition services, and HR consulting.

Regulatory Changes: Employment laws and regulations continue to significantly impact the staffing industry. This includes changes in the classification of employees vs. independent contractors, minimum wage laws, wage transparency, and additional disclosure/reporting. These are primarily at the state level, creating an oft-bewildering maze.

Financing the Industry

The industry is highly reliant on working capital financing due to the need to pay employees on a weekly or bi-weekly cycle. While typically the client is billed monthly and may take 30-60 days (or longer depending on the segment and business model) to pay. This leads to significant working capital liquidity needs.

The industry is served by many bank and non-bank financiers. We have identified more than 30 banks and non-banks which identify staffing as a target segment. Plus, we know there are many other participants who don’t identify the industry specifically.

The predominant form of financing to the staffing industry continues to be factoring in various forms, recourse, nonrecourse and “full-service”. Full-service is especially popular with smaller firms and usually includes additional services like credit checks, collections, and sometimes even more extensive back-office support.

ABL is also a popular choice, especially for medium-sized and larger staffing companies. ABL allows a staffing company to maintain control over its accounts receivable, which can help the company maintain stronger client relationships as it continues managing its collections process. Additionally, ABL generally is more costeffective.

Macro Issues

In addition to the dynamics already discussed, the industry is sensitive to the economic cycle, and this can vary significantly by the sector being served.

Staffing businesses experience peak and off-peak periods, closely tracking economic fluctuations. When the economy grows, staffing companies are busy adding temporary or permanent staff. During off-peak times, while business slows, firms may reduce full-time headcount and replace some or all of that with temporary employees to have maximum flexibility in managing their workforce. This second dynamic offsets or softens the effect of an economic slowdown on the staffing industry overall.’

However, it is also critical to pay close attention to the segments within staffing as there can be vast differences in growth or declines. The following data from Staffing Industry Analysts is a stark example

of this. In 2020 the Light Industrial segment dipped slightly, grew slightly in 2021, has been flat in 2022/2023, and is expected to grow in 2024. By contrast, the Travel Nurse sector grew 50% in 2020, 190% in 2021, and 45% in 2022, but has fallen 25% in 2023 and is expected to drop another 10% in 2024.

The industry is resilient, often rebounding quickly from economic downturns due to its inherent ability to respond rapidly to market changes. This resilience can translate into consistent returns for lenders.

The industry’s fluctuating nature, low entry barriers, and other factors can make it riskier than other sectors. For instance, staffing companies are also susceptible to changes in employment law, labor disputes, and shifts in market demand, adding layers of complexity for lenders.

Other Nuances

In a traditional staffing agency setup, the account debtor is usually straightforward. Typically, the client company has contracted with a staffing agency for temporary or permanent staffing needs. However, the involvement of Managing Service Providers (MSPs) and Vendor Management Systems (VMS) in the process can complicate the identification of the account debtor.

MSPs and VMS are designed to streamline and simplify the staffing process. However, these systems can occasionally reduce transparency. Lack of visibility into the client company’s payment practices, creditworthiness, and financial stability can make assessing the risk involved in lending against invoices difficult.

MSPs and VMS play critical roles in the staffing industry. These tools provide important benefits such as cost control, standardized processes, and streamlined recruitment. However, they introduce certain challenges regarding financial matters like determining the account debtor.

An MSP is an intermediary between the staffing agencies (or suppliers) and the client companies. So, the account debtor might not be the end-client company but the MSP. This can make it challenging for lenders to ascertain the actual debtor, as the MSP is responsible for payment, but relies on the end client’s solvency and payment habits,

In a PEO arrangement, there’s a co-employment relationship where both the staffing company and the PEO share certain employer responsibilities for the employees. If the PEO fails to fulfill its obligations, such as paying wages or managing tax reporting, the staffing company could be held liable.

introducing a pay-when-paid dynamic to the risk equation.

The presence of an MSP also often means working with multiple staffing agencies, which may disperse financial risk across multiple parties, but adds to the complexity of monitoring the solvency and financial reliability of all these involved entities.

Next, MSPs often use a VMS to automate procurement, billing, and other processes, adding a layer of complexity. Using VMS can further obscure the direct relationship between the staffing agency and the client company, making it even more challenging to discern the ultimate account debtor and their payment ability.

Contract terms can vary, sometimes resulting in unique payment structures. Some MSPs might take on the role of an account debtor, while others might pass this responsibility to the client company. These variations necessitate careful examination of contract terms to determine the actual account debtor.

Professional Employer Organizations (PEOs) and Employer of Record (EOR) are a development that has grown out of several key trends and shifts in the business landscape, including the increasing complexity of labor laws and regulations and the need for maximizing cost efficiencies.

In a PEO arrangement, there’s a co-employment relationship where both the staffing company and the PEO share certain employer responsibilities for the employees. If the PEO fails to fulfill its obligations, such as paying wages or managing tax reporting, the staffing company could be held liable.

Contracts with PEOs or EORs can often be complex. Some contracts may allow the EOR or PEO to change pricing or service terms with little notice, potentially increasing costs for the staffing firm. Some EOR or PEO agreements might grant the EOR/PEO control over the staffing firm’s receivables, which could pose a significant risk for a secured lender that might otherwise use those receivables as collateral for a loan.

Dependence on the EOR/PEO: The staffing company’s operations become tied to the EOR or PEO, which means any operational issues or business failure on their part can directly impact the staffing firm.

Sub-contractors have become increasingly prevalent due to labor market shifts and business landscape shifts. This approach allows companies to meet evolving client demands, manage costs, and navigate a rapidly changing employment environment. However, it introduces several risks. If a subcontractor fails to deliver, it can impact the staffing company’s ability to service its clients, potentially leading to lost revenue and an inability to service its debt. Subcontractors may be directly interacting with the staffing company’s clients. Poor performance by a subcontractor could harm the relationship between the staffing company and its clients, jeopardizing the business.

If the subcontractor invoices the end client directly and the staffing company bills the subcontractor, the lender’s collateral is now dependent on the financial stability and reliability of the subcontractor and the end client.

This leads to a broader discussion of continuation of service. It may be critical if the staffing company is facing financial difficulties and can’t meet its payroll obligations; the collectability of that AR, and hence the value of the lender’s collateral, can come under threat in

these situations.

In the staffing industry, the employees (or temps) are the core assets generating the receivables. Employees may cease work if the staffing company can’t meet its payroll obligations. This could result in the staffing company being unable to fulfill its contractual obligations to clients, which in turn could lead to the clients refusing to pay their invoices. If a staffing company can’t provide staff as promised, it risks an immediate loss of receivables and long-term client relationships.

In addition, failure to meet payroll obligations can result in fines, penalties, lawsuits, and general reputational damage, and if a staffing company fails, the lender’s ability to collect on its collateral could be severely impaired. Customer debtors will assert offset claims, and there is always the potential for a messy bankruptcy process.

Conclusion

The staffing industry is a core part of the economy regardless of changes within industries and the ups and downs of the business cycle. The staffing industry is directly responsible for 16,000,000 jobs, and 6,400,000 of those in highly skilled occupations.

But as we have discussed, there are many layers and permutations of risk that are changing. For those who take the time and effort to learn and go on learning, there are great opportunities in this key part of the economy.

Terry Keating is CEO of Access Capital, a New Yorkbased commercial finance firm and the nation’s leading independent lender to the staffing industry. He has over 40 years of leadership and senior management experience in the financial services industry, including 20 years in commercial banking and 10+ years in consulting and investment banking.

Keating is active in various industry associations. He is also an active member of the Secured Finance Network, including serving as a member of its Industry Data Committee, and its DEI Committee, as well as participating in the Mentoring Program. Additionally, he is active in the New York Institute of Credit, International Factoring Association, Association for Corporate Growth, Alliance of Merger & Acquisition Advisors, and Turnaround Management Association.

Keating can be reached at tkeating@accesscapital.com.

Built for the Moment

SFNet’s 79th Annual Convention

November 15-17, 2023 | Orlando, FL

The secured nance industry is known for its ability to adapt and thrive—no matter what comes our way, we are “Built for the Moment.” When the situation calls for agility, we have the tools to respond. We have the patience to assess the risks and experience to nd the opportunity that others might not see.

At SFNet’s 79th Annual Convention, you will have access to the dynamic speakers and thought-provoking content that will keep you ahead of the curve and ready to optimize your business strategy. You’ll also nd unparalleled opportunities to network with top professionals in secured nance, opening doors to new collaborations and partnerships.

Don’t miss the opportunity to be part of this extraordinary event.

The State of Retail:

How Did We Get Here and What’s on the Horizon?

BY CASSIE ROSENTHAL

While retail data reported at the mid-summer mark pointed to a strong labor market, steady consumer spending in certain categories and retail sales up from last year for several straight months, the data only tells one side of the story. The numbers are merely inching forward, as growth across many sectors has been sluggish, if not altogether flat. This year has unexpectedly been a mixed bag for the retail and credit market, and with continued volatility and an overall lackluster economic forecast, businesses and lenders must be prepared for any scenario.

Aseasoned team of commercial finance experts from Rosenthal & Rosenthal joined The Secured Lender for a roundtable discussion on the current state of the retail and credit market and its impact on factoring, asset-based lending and purchase ordering financing. Rosenthal’s EVP and head of credit, Anthony Verrilli, and three of the firm’s portfolio managers, Derek Sigler (EVP, Northeast Region portfolio manager), Bertie Pujji (EVP, Western Region portfolio manager) and Kirk Brown (EVP, Southeast Region portfolio manager) shared their observations and insights on the challenges clients and prospects are facing in the current economic climate and how they are responding. With a unique vantage point spanning multiple industries and geographic regions, the Rosenthal team weighed in on where we are right now, what we can expect to see more of in the second half of 2023 and how we should be preparing as we look ahead to 2024.

Where We Are Now is Not Where We Thought We Would Be

What are you seeing and hearing about the credit environment right now and how is it impacting the retail sector?

Verrilli: Most economists covering retail thought we’d be in a better place than we are. Rising interest rates are affecting everyone –consumers, manufacturers and retailers alike. And having to borrow money at more than twice what it cost to borrow two years ago really puts a damper on liquidity.

Sigler: The outlook going into 2023 was mostly positive and borrowers were excited about lower freight costs, better pricing and what we hoped would be increased demand. Activity was expected to pick up by now, but things are still very sluggish. It’s looking more and more like it won’t be until the second half of 2024 before things bounce back.

Pujji: Consumer demand continues to be weak in many industries and sales for most clients are way down, neither of which we expect to improve this year. That, coupled with the cost of borrowing being through the roof, and clients are really seeing a hit to their bottom line.

How are inventory issues playing into the current dynamic?

Brown: Many retailers have adopted a “wait and see” attitude, which, given the circumstances, makes a lot of sense. They’re remaining very cautious and don’t want an influx of inventory like they had during and after the pandemic, so they’re pushing back on clients. For example, furniture and home furnishings was one of the most robust sectors over the last few years and now it is really taking a hit. Inventory has more or less been rightsized and higher-cost inventory has been pushed out. But even though inbound freight costs are significantly lower than they had been, there is still a lot of hesitation around adding new inventory to the mix.

Pujji: The businesses who have been effectively managing inventory are now being rewarded. By contrast, those who didn’t manage

inventory well are now giving out heavy discounts to retailers to shed their excess inventory and losing money in the process. Retailers are pushing out their orders and being more careful about placing new orders. Those retailers struggled with their own inventory issues last year, most of which have improved, but many are still spooked.

Verrilli: When you look at the inventory positions of retailers, it’s really a mixed

KIRK BROWN Rosenthal & Rosenthal

CASSIE ROSENTHAL Rosenthal & Rosenthal

BERTIE PUJJI Rosenthal & Rosenthal

DEREK SIGLER Rosenthal & Rosenthal

ANTHONY VERRILLI Rosenthal & Rosenthal

bag. Some who had struggled with high freight costs, port issues and supply chain disruptions got smart and dumped their inventory quickly, while other less-progressive retailers got stuck with it. Many are more conservative and are buying leaner and meaner, sometimes to a fault. But without enough inventory on the shelves, it’s been difficult to bring customers back to the stores, so it’s a bit of a Catch 22.

Brown: The supply side has also shifted dramatically. A few years ago, it was nearly impossible to get products on a ship overseas and now it’s hard to find one that’s full enough to leave the port. Oftentimes, product will arrive at an overseas port and it will sit on the ship for 4-5 weeks before leaving. Those delays aren’t just frustrating the retailers, but consumers too.

How are clients responding to these challenges?

Sigler: Some clients are mitigating the lower sales by adding new licenses or seeking acquisitions to break into new customers and cross sell existing product. Some are exploring DTC, but if they don’t already have that expertise, they would prefer to acquire a company that has the experience and the reach already. The businesses that learned how to pivot are the ones that are staying afloat through this uncertain period. They’ve faced a lot of hurdles these last few years—COVID, supply chain disruptions, port closures— and that has made them more resilient.

Pujji: Generally, we’re seeing that private label is doing better than brands, unless it’s a very established brand. The health and beauty segment does not seem to be impacted as much as other sectors, but that may be because they have better margins to begin with and more room for marketing and social promotion. But that industry is really an outlier. Just look at apparel and you’ll see how poor the demand is.

Second Half of 2023: More of the Same

Without much hope of things improving in the latter half of 2023, what should clients be focused on?

Sigler: As a lender, it’s our job to monitor the profitability of a business

and how they’re reacting to lower sales volume. Our most successful clients are the ones that are nimble and that adjust accordingly when they need to.

Brown: Clients should really know their financing options. In a tricky environment like this, we’ve seen credit insurers pull back and banks draw a line in the sand when it comes to advancing on collateral other than receivables. Reliance on inventory has increased in this category because banks have said they’re not going to leverage into inventory to supplement liquidity, and many stopped altogether. Independent alternative lenders like Rosenthal are fortunate that they can lend to many of these clients when bank financing is no longer feasible.

Verrilli: We’re collateral lenders and because we’re not bank-owned, we are uniquely positioned to support businesses in this environment. What a bank might classify as a risky loan, might not be as risky to Rosenthal because we have adequate collateral that we can turn into cash. With rising interest rates, non-bank lenders are well positioned in this climate because speed and flexibility are paramount.

Sigler: Our clients have learned their lessons and have gotten much better at reading the tea leaves. If volume is down, that’s not the time to bring in more inventory. We’re seeing an uptick in buying against confirmed orders, which allows clients to react quickly if there’s a credit risk or another issue. As a factor, we have direct access to customer portals and can monitor AR performance in real-time and change course if there is a credit or collection issue.

Do you predict it will be more of the same for the rest of 2023?

Pujji: It’s become very difficult to predict what will ultimately sell, which has made retailers hesitant about building up their inventory. The summer season was a good test. We saw a lot of push back from retailers when it came to summer-related apparel and other goods. So, it will be interesting to see what happens with winter and holiday goods over the next few months and whether they get pushed out too.

The biggest hope now is for lower interest rates to kick in, but I don’t see that happening anytime soon either. These high rates are here to stay and, as a result, it’s going to be very difficult to jump start the industry now or even in 2024. In fact, it’s likely that a real recession is brewing on the horizon.

Brown: What’s happening in furniture is another good indicator. Thirty percent of Rosenthal’s business in home furnishings is container direct, meaning large containers out of Asia shipped direct to retailers. But no one is betting on inventory like that right now, so that segment of the home furnishings sector has become painfully slow. Just recently, we started seeing orders for containers for late Q4 2023 in anticipation of some pick-up in the first part of 2024. But it’s still too early to tell if that will be a one-off or the spark the industry needs to restart growth in the sector.

Looking Ahead: What 2024 Will Bring is Anyone’s Guess

Given where we are today, what can we expect for the early part of 2024?

Pujji: With losses and higher inventory levels, banks are getting concerned. Clients that have a good balance sheet, but have higher inventory levels and show a loss from last year, are getting pushed out of their bank lending relationships, but lenders like Rosenthal are often able to look beyond the loss and see the whole picture. As a result, I expect we’ll see more clients looking for alternatives to bank financing as we head into 2024.

Verrilli: The public has a rather poor perception of the state of the economy right now. Consumers may be more inclined to save money than to spend it. If morale increases, you might see an uptick in activity in 2024, but I don’t see us turning the corner that quickly. Also, in an election year, when an incumbent candidate is polling so low, you may often see an effort by the government to get more disposable income in the hands of lower- and middle-class voters for political purposes.

Brown: The biggest hope now is for lower interest rates to kick in, but I don’t see that happening anytime soon either. These high rates are here to stay and, as a result, it’s going to be very difficult to jump start the industry now or even in 2024. In fact, it’s likely that a real recession is brewing on the horizon. If it gets to that, unemployment will rise, costs will fall, wage inflation will ease up. With no supply side, demand will weaken and prices will start to drop, inflation will stall out and the economy will come to a grinding halt. Unfortunately, that’s the kind of seismic shift that may be required to jumpstart the economy and kickstart the retail sector again. As frightening as it sounds, that scenario may not be that far off.

How should clients prepare for what will clearly be a long haul in 2024?

Brown: For lenders, it’s important to remember that while a challenging market like this can certainly create opportunities, it can also be dangerous depending on how much risk you take on. We need to be mindful of how much risk we’re willing to take on and who we choose to partner with. As a lender, you never want to be caught in an upside down situation.

Pujji: My advice to clients in this climate is to watch your inventory carefully and pay close attention to your overhead. Continuing to monitor inventory effectively will be the key to whether businesses will survive this period. I also tell clients to continue to find ways to pursue new growth opportunities, even if it feels like they don’t exist. For example, to help mitigate a downturn in sales, many clients are looking to align with other brands and licenses to win more market share. If they already have a platform and can put that brand or license in their existing platform, it’s an easy way to grow their business and bottom line.

Sigler: Now is the time to be more conservative and mindful of inventory and the cost of running a business. Proper inventory management and reporting is critical. Clients should monitor the fees being incurred for holding onto slow-moving inventory. It is probably not the time to make big purchases trying to swing for the fences.

Cassie Rosenthal is the chief marketing officer and executive vice president with Rosenthal & Rosenthal, managing both business development strategy and marketing efforts for the company. She led the efforts to revamp the firm’s branding, website, content, social media, messaging and develop its first client mobile app. She has also been instrumental in developing and launching Pipeline, Rosenthal’s newest division focused on e-commerce and direct-to-consumer companies.

Prior to joining her family’s business in 2012, Rosenthal coowned and operated two art galleries (Goff + Rosenthal) for a decade, one in New York and one in Berlin. She serves as president of the Board of Directors for Women Helping Other Women (WHOW), a charitable professional networking group that helps women and children in need, and is CoFounder of BABE, a networking community for women executives, business owners and entrepreneurs. She is also a former board member and champion of Let’s Get Ready, a nonprofit supporting first generation college-bound men and women and low-income high school students through the college-going process.

Rosenthal is on the board of the New York Institute of Credit (NYIC) and was the inaugural recipient of the NYIC’s Women’s Division Renaissance Award. She has been featured in The Wall Street Journal, The New York Times, WWD and Footwear News and has appeared on BBC Radio and CNBC. Rosenthal received a BA from Colgate University and a master’s in art history from the Sotheby’s Institute in London.

Lending on Government Receivables and Contracts

BY CAROL APICELLA AND RICHARD POLLAK

Government contractors’ performance and lending requirements can change with the slightest turn due to financial regulations, acts of nature and geopolitical occurrences. Knowing you are secure in lending to, or financing, government contractors starts here.

Government contractors’ stressors, including, among others, their financial performance, successful contract award, and building the infrastructure to complete the effort, combined with fulfillment of the contract, create pressures much like those when a diamond is created.

But even diamonds have flaws. Some flaws may be readily visible, while others need the aid of magnification to be brought to light. The lender must use its knowledge to identify those flaws that may impact its secured position vs. those that are not harmful to the lending relationship.

Relationships in lending include analysis of borrowers’ past and present business operations as well as understanding requirements linked to successfully perform on contracts.

Contract awareness includes, though not limited to, the contract being:

Fully executed by all parties

Appropriated for the full contract amount (Base year plus Option years)

Track appropriations-Purchase Orders (PO), Task Orders (TO), Work Orders (WO)

Verify Periods of Performance

Terms of Billing and Payment

Billing vehicles (i.e., WAWF, IPP, Tungsten, etc.)

Familiarity with the contract terms, preparedness for the plethora of government acronyms, and lender vigilance in understanding the borrower’s obligations are all important before wading into the world of government contract finance.

Is Your Institution Properly Secured?

Whether a bank or a finance company in an ABL relationship or purchasing invoices in a factoring relationship, the collateral will be tied to services rendered and/or goods delivered and typically all business assets.

Perfecting the lender’s first lien position under the Uniform Commercial Code (“UCC”) and taking an assignment as allowed by the Federal Assignment of Claims Act (“FACA”) on prime government contracts where applicable, are two action items necessary to being secured.

Under the Uniform Commercial Code (UCC), a secured creditor perfects its security interest in accounts receivables (accounts) by obtaining a security agreement and filing a financing statement in the appropriate jurisdiction. Perfection in this manner works for both commercial accounts and accounts which are subject to the Federal Assignment of Claims Act (FACA). If this is the case, then why should a lender comply with the FACA?

Under the UCC, if a borrower defaults on a loan secured by accounts, the lender has the right to notify the borrower’s

customers (account debtors) of the lender’s security interest in the accounts and direct them to make future payments to the lender – not the borrower. If an account debtor ignores the notice from the secured party and continues to make payments directly to the borrower, the account debtor remains liable to the lender for the full amount owed to the borrower. In other words, the payments which the account debtor makes after receiving notice does not discharge the debt unless the account debtor makes those payments directly to the lender.

These same rules do not work on a government contract. In the government contractor industry vertical, the future is most important as successful performance on a contract potentially will lead to other opportunities, which in turn will lead to additional lending requirements. After reviewing the financial snapshot of the borrower, a lender’s initial focus should immediately commence with a deep dive into the borrower’s contract of engagement with the government agency or prime contractor with whom they are doing business. It is important to never lose sight of the fact that the contract is the roadmap that governs the contractor’s business cycle process from expectation to fulfillment to creation of invoice to final payment.

Under federal law, the government will make payments in accordance with the directions it has received from the borrower. Subsequent instructions to direct payments to the lender will not be honored by the U.S. government. Further, unlike the commercial account debtor who continues to make payments at its own peril, if the federal government makes payments to the borrower after notice from a secured party, the debt paid is discharged.

Here is where the FACA is needed. If a lender complies with the requirements of the FACA, payments from a government contract will be directed by the government directly to the

CAROL APICELLA BankFinancial, NA

RICHARD POLLAK Troutman Pepper Hamilton Sanders LLP

lender until such time as the lender releases the assignment. The borrower cannot give the government new payment directions or divert the funds to another financial institution unless the lender consents.

The assignment is limited to the monies due under the contract, not performance under the government contract. In other words, the government permits the contractor to assign the payments due from the government, but does not permit the contractor to assign its obligations to a third party.

The Steps

After the Lender takes the initial steps of perfecting its security interest in accounts, the lender needs to take several additional steps to take an effective assignment under the Act.

The lender should obtain a copy of each government contract. It is important to have counsel review the contract.

The contract will provide (i) the contract number and date and describe the nature of the goods or services being provided to the government, (ii) the government agency which is contracting with the Borrower and (iii) most importantly, the name and addresses of the contracting and disbursing officers on the contract.

With this information the lender can prepare two documents needed to comply with the Act: the assignment of the monies due under each contract and the notices of assignment.

There are slight variations on the form but, the form of assignment has been in use for 80 years. To complete the assignment, the lender needs the information from the contract. Once the assignment is complete the borrower signs the assignment. The assignment provides the government with specific directions on where payments should be made. This is almost always a deposit account with the lender.

Then the assignment is sent to both the contracting officer and disbursing officer with the prescribed form of notice. The contracting officer is the person who awarded and oversees the contract, the disbursing officer is the person who makes payments on the contract. It is possible at times for one

person to be both the contracting and the disbursing officer. Both the contracting and disbursing officers must separately acknowledge the assignment and return the acknowledged assignment to the lender. Once acknowledgement happens, payments will be automatically directed to the deposit account with the lender until such time as the lender releases or terminates the assignment by filing a release with the contracting and disbursing officers.

This is the entire process for compliance with the FACA.

Practice Pointers

Both the contracting and disbursing officers need several true correct and complete copies of the notice form, along with a true copy of the assignment document. Read the notice form and follow the instructions. The lender should always take responsibility to deliver the notices to the government along with return envelopes addressed to the lender – preferably by FedEx. Don’t hand it to the borrower and ask them to do this.

In all cases, prior to the assignments and notices being sent out, the borrower should first contact the contracting and disbursing officers to tell them the assignment is coming. This avoids any confusion and delay.

As a lender, you should always consider which contracts you are going to have assigned, particularly if the borrower has a large number of contracts. Set thresholds based on the dollar amount and remaining term of the contracts. In other words, only take assignments of contracts which have remaining payments in excess of a certain amount.

Finally, the market on compliance with the FACA has shifted over time like a pendulum. Years ago, assignments were done routinely without any real objection. In today’s market, rather than requiring compliance with the Act many lenders are taking several different approaches.

One approach is to simply provide the lender with the right at any time to require the assignments. On its face, this seems like a flexible way to protect the lender, but in reality it becomes very difficult to require the assignments absent some significant change in the borrower’s condition – and then the

Under federal law, the government will make payments in accordance with the directions it has received from the borrower. Subsequent instructions to direct payments to the lender will not be honored by the U.S. government.

borrower is unlikely to cooperate. If the borrower is already in a default of some kind, an additional default for failure to provide the assignments won’t really leverage the borrower.

A second approach is to either only take the assignments after an event of default has occurred or to have them signed at closing, but hold them and only file them upon a trigger event – an event of default or a covenant violation. Both of these approaches are problematic because the contracts you have assigned may no longer have much value or have been replaced by new contracts. Second, it is very unlikely that after an event of default the borrower is going to provide the lender with assignments unless the lender agrees to waive or forbear from the default.

Successful government contractors frequently enter into new contracts, meaning you need to have mechanisms in your loan documents for the borrower to periodically (quarterly with a compliance certificate) notify you of any new contracts and if you are taking assignments, provide you with the notice and assignment forms.

A Few Other Risks

A federal contractor can be suspended or debarred from contracting with the government. These are remedies the government has for contractors who fail to perform under contracts or for whom audits reveal accounting and other issues.

Suspension means that the contractor may not be allowed for some specific period to enter into new contracts with the government. This is the less-onerous punishment.

Debarment means a company cannot continue to enter into any contracts with the government and may impact the existing contracts the company has.

In the ever-evolving world of government contracting, financial institutions must remain vigilant and adaptable to mitigate risks effectively. By following the prescribed steps and staying informed about regulatory changes and industry trends, lenders can secure their positions and build successful relationships with government contractors. In this intricate realm, thorough understanding and proactive measures are the keys to long-term financial stability and success.

Carol Apicella is senior vice president & department manager with BankFinancial, NA Government Finance. BF Government Finance’s lending focus is on businesses who perform on contracts for Federal, State and Municipal agencies. Her experience has spanned over 35 years in management, credit, lending and business development for banks and financial companies the B-2Government and B-2-Business industry vertical.

Richard Pollak, partner with Troutman Pepper Hamilton Sanders LLP, has been practicing law in the Mid-Atlantic for close to 40 years. His practice is focused on middlemarket lending with an emphasis on asset-based transactions for regional and money center banks which are often secured by government accounts receivable. Pollak holds a BA in economics from Colgate University graduated Cum Laude and received his JD from American University Washington College of Law. Since 2016 he has been adjunct professor, American University, Washington College of Law.

The lender should always take responsibility to deliver the notices to the government along with return envelopes addressed to the lender – preferably by FedEx. Don’t hand it to the borrower and ask them to do this.

Dynamic Advance Rates in a Specialty Finance Setting

BY MATT WILLIS

While the focus of this article pertains to lenders to commercial and consumer finance companies, the principles described can be ascribed to trade receivables as well, particularly in seasonal businesses with dating terms or complex payment arrangements.

The utilization of dynamic advance rates structured around trailing dilution and loss ratios is commonly seen within securitization and asset backed lending transactions. This practice, however, is less commonly applied in Specialty Finance settings, where lenders to finance companies more commonly adopt a static advance rate to the portfolio or adopt dynamic rates from an ABL setting utilizing historic default and charge-off percentages as an indicator of performance. This can provide a level of confidence to their credit teams around a product or collateral which may be less familiar.

As field examiners, we have seen a mindset shift regarding field exams. Once considered a check box exercise at the tail-end of an underwriting process used to confirm existing assumptions, these exams have now become an integral part of the decision-making process itself, alongside a lender’s own credit team practices.

A field examination early in the process can generate several data points to enable the prospective lender to make a more informed decision and enable the creation of a structure that shifts with the performance of the borrower.

When engaged for a survey transaction, our Specialty Finance team at Hilco Diligence Services (HDS) works with the prospective borrower to establish several outputs evidencing portfolio performance. Collectively, these metrics assist the lender in determining how best to effectively structure their advance rate position where the analysis used replaces the more traditional approach of dilution rates and turnover days.

Creating a reliable and robust rollforward of receivables is a critical first step in understanding the cyclical nature of the portfolio. While this is common for most lenders, borrowers within Specialty Finance environments often do not have the capabilities or willingness to create this output from scratch and need some guidance through this process.

Here, also, it is important to consider nuances specific to the borrower. For example: Consumer lenders may monitor receivables at a gross level, inclusive or exclusive of interest receivable. Healthcare AR would need to be stated net of contractual allowances, payor reductions and lease payment streams which, in particular, can become complex as the implied interest rate of the lease can be restated with any modifications– making a principal-only rollforward a challenging prospect.

Once a rollforward is created, this allows a cash recovery rate (CRR) analysis – also commonly referred to as it’s inverse, a loss to liquidation (LTL) ratio. The CRR/LTL used today for Specialty Finance portfolios date back to the mid1990s with lenders coming to understand the benefits of an approach focused on cash over a delinquency-based approach that can be more easily manipulated within the borrower’s receivable aging.

A CRR is based on the liquidations out of the portfolio.

It calculates the percentage of receivables exiting the pool during the period which are settled in cash, relative to all liquidations. The result can be extrapolated forward to provide an orderly liquidation value (OLV) for the pool, assuming the material components of that pool remain consistent over time and incorporated into an advance rate calculation which can be restated each reporting period. Using a trailing 12-month average helps to adjust for seasonality in the borrower’s business, while a shorter time horizon can allow deteriorating performance to be captured sooner. A cautious approach can take the lower of a trailing 3- or 12-month CRR. In practice, the

MATT WILLIS Hilco Diligence Services

1 2 3 4 5

Key Points

Cash is king when assessing collectability / liquidation value of a portfolio.

Dynamic advance rates incentivize the borrower to take greater responsibility in reporting and understanding key drivers of portfolio performance.

Post-charge-off recoveries and the associated costs of recovery can play an important factor in a lender’s assessment of a portfolio.

the CRR figures reported. These analytics ensure that issues within a portfolio are not hidden by the CRR calculation, which can occur where receivables are flow in a LIFO (“last-in-first-out”) logic, thereby leaving the non-performing receivables propping up the collateral base but not liquidating. This is not an issue if the receivables age and are charged-off with expectations. Where restructuring of accounts through modifications or extensions takes place, however (which is particularly common with consumer borrowers and often utilized by borrowers as a collection tactic), it can keep non-performing receivables eligible within the portfolio when not identified and appropriate eligibility is not determined prior to origination of the transaction.

advance rate will likely incorporate both a discount to the reported CRR to create an additional buffer for the lender and a ceiling to the overall advance rate. In this dynamic approach, which can be recalculated monthly or quarterly, responsibility is placed squarely upon the borrower to monitor receivables performance and enhance its own credit decisioning profile. By doing so, the borrower can improve availability and best align to the risk profile of the lender based upon the agreed borrowing base structure.

Where the borrower has significant post-charge-off recoveries due to a strict charge-off policy or an inherent part of its business model – for example: post-charge-off repossessions for an auto dealer – credit can be assigned into the calculation for the additional recovery. Importantly, a lender should consider and monitor the costs associated with obtaining the recoveries. In a liquidation scenario, these legal or asset recovery costs would be borne by the lender, which can be significant at times. Therefore, treating recoveries on a net basis, including recovery costs, may be a more prudent approach where data is available to determine and then track on an ongoing basis.

With such a heavy reliance on the rollforward, part of the HDS field exam process is designed to validate the underlying data supporting the various rollforward categories. Without proper testing, reliance cannot be placed on the CRR/LTL as the output could be inflated for various reasons, including not charging off receivables within set timelines or netting dilutions within other rollforward line items, for example.

Additionally, getting transaction-level detail pertaining to non-cash adjustments helps to ensure that the categories are being appropriately included or excluded from the calculations, and helps to inform eligibility considerations around restructured accounts. While these can be simple tests to perform, they require subject-matter expertise and are crucial in gaining greater clarity and confidence behind

Static pools or the company’s loss reserve, as determined with a borrower’s external auditors (in accordance with current expected credit loss “CECL” requirements), can also be used as factors for evaluating portfolio performance and assessing expected collectability.

Static pool analysis is most common in consumer lending portfolios, where underlying customers can be considered relatively homogenous and therefore ideal for cross analytics between origination tranches. This assists the borrower to dictate its future underwriting criteria or portfolio purchases, alongside charting expected collections over time.

In trade receivable situations where dating terms or complex payment arrangements exist, a static pool and CRR rollforward can shed light on how well these receivables actually collect and provide insight to the lender on collateral quality.

Building the above outlined analytics into borrowing base reporting packages and having a direct impact on the borrower’s advance rate brings enhanced visibility and ties AR portfolio changes to the borrowing base, hence reducing risk to the lender. Doing so, enables each party to identify deterioration of portfolio performance and allows for a more dynamic borrowing base approach rather than reactive decision making alongside other covenants and ratios imposed by the lender.

HDS structured a dynamic advance rate for a portfolio of consumer loans for a retail business and continued to monitor through recurring field exams as Company performance began to decline, eventually filing for bankruptcy. A deteriorating CRR informed by the Company’s rollforward resulted in a falling advance rate and availability for that component of the transaction to limit the lender’s exposure. The deterioration was driven by a fall in sales which impacted the volume of collections from consumers that settle their outstanding balance in a short period. This inherently impacted the structure of the portfolio causing an aging receivable base with non-cash

Seasonality of a business must be considered when applying dynamic advance rates.

A field examination with comprehensive coverage of a borrower’s rollforward and aging profile prevents poor performance being masked through a variety of non-cash adjustments.

liquidations increasing as a percentage, given that total liquidations were falling.

The dynamic rate allowed lenders to identify the issues and understand the underlying mechanics of the problem sooner, enabling them to begin working on resolutions. The alternative approach of a static rate would rely on monitoring for increases in the delinquency/default rates and breaching associated covenants, at which point the collectability of the remaining portfolio would have been significantly impaired relative to the historic norm for that business.

The above data points, when aggregated and verified from a field exam, allow the lender to take a quantifiable view on portfolio performance and expected recovery. Alongside macroeconomic considerations and qualitative risk factors, this data-driven perspective can be utilized in structuring a dynamic advance rate which incentivizes Specialty Finance borrowers, both small and large, to truly understand the causation for performance within their portfolio.

Matt Willis is executive director at Hilco Diligence Services, a business unit of Hilco Valuation Services, and leads the Specialty Finance Group, which performs third-party field exams and other transaction-specific diligence engagements across North America and Europe on behalf of the investor community. Willis’ focus is on pre-loan surveys for consumer and specialty lending transactions with experience structuring and evaluating collateral bases for a range of lenders. He can be reached at MWillis@hilcoglobal.com.

Building the above outlined analytics into borrowing base reporting packages and having a direct impact on the borrower’s advance rate brings enhanced visibility and ties AR portfolio changes to the borrowing base, hence reducing risk to the lender. Doing so, enables each party to identify deterioration of portfolio performance and allows for a more dynamic borrowing base approach rather than reactive decision making alongside other covenants and ratios imposed by the lender.

Transportation Factoring in a Freight Recession

BY GEORGE A. THORSON

Factoring for trucking companies and brokerages has skyrocketed in the last 10 years. An estimate on factoring company purchases is $90 billion annually. There are about 250,000 active for-hire carriers with 96 percent having six trucks or less. Factoring remains a necessary and viable tool for smaller carriers who have limited access to bank lines of credit or asset-based lenders. The transportation factoring company fills this void through the built-in elasticity of its offering – helping companies expand when the transportation industry is booming and sustain business when the industry is down.

In 2021, our nation’s trucking companies had one of the best years, with freight rates (or rates per mile driven) soaring to record highs. The combination of federal government support programs coming out of the pandemic in 2020 with favorable freight rates caused an expansion of new trucking entries and fleet growth. This created overcapacity, as consumers shifted their spending to services, and returned to restaurants and travel.

All the catch-up in the supply chain created overstock, and freight tonnage began to contract.

In the second half of 2022 and so far in 2023, the transportation industry has suffered through a 30-percent reduction in rates per mile, dropping below breakeven for many small trucking companies. Large fleets have reported a severe reduction in earnings and lowered outlooks for the remainder of the year. Through May of this year, the Department of Transportation (DOT) has recorded a net reduction of 15,000 fleet authorities.

Contributing to the current state, during 2021 and 2022, the costs of both used and new tractors and trailers rose dramatically. Those ordering new tractors faced a 12-14-month wait at a 60 percent average higher cost. This pushed up the cost of used equipment as firms held onto their units for longer. Putting more miles on the trucks increased repair costs and a shortage of parts occurred. Driver payroll increased and insurance costs rose.

Even in a dynamic rate market, cash-flow pressures remained, and transportation factors stepped up. Funds advanced had to grow with increased activity, in many cases rapidly with the supply chain problems from the pandemic creating excess freight.

Small and medium-size carriers need factoring due to cashflow pressures. Diesel fuel and driver pay must be paid every week. The cost of insurance, repairs and payments for tractors and trailers require cash outflow that cannot wait 45 days for payments. Carriers seek the services of their factoring partner on invoicing, credit decisioning and collections. As technology has advanced, invoice and document presentment are now increasingly digitally managed, requiring a savvy partner to facilitate timely acceptance and payment.

Transportation factoring is more of a combination of services and invoice funding than in general factoring. Such offerings may include help in obtaining new motor carrier authority, fuel cards and fuel discounts, access to insurance products, transportation management software, tire discounts and even legal support.

For the factor, the transportation niche features each invoice as a completed transaction with dilution of one percent or less. Most small and mid-size carriers work for about 9,000 freight brokers, who are accustomed to making about 60 percent of their payments to factors. These account debtors are accustomed to receiving notices of assignment and, for the most part, comply and make payments direct to

the factor. There are specialized mercantile credit reporting products that focus on tracking the payment patterns and volume of these freight brokers, allowing familiarity and active warnings for the account debtor credit department.

The business failure of a carrier has minimal impact on the collection of accounts receivable, as a carrier/factor can generally receive payment for each completed freight load. There are no returns and allowances creating dilution as in general factoring, with the biggest offset risk relating to freight claims. Trucking also extends to many verticals, from produce, energy, construction materials, retail goods, etc. In 2022, trucks carried 11.48 billion tons of freight through dry vans, flat beds, refrigerated trailers, tankers and specialized trailers.

Trucking is a low net-margin business. This is amplified in a transportation recession when rates are low and diesel costs are high. Small trucking firms expect a 95-100 percent advance less the discount fee and a non-recourse contract. Medium and larger firms still look for a 90-95 percent advance, but most move towards a recourse contract with a lower rate. Given a rate of dilution of one percent or less, this is not beyond the realm of safe practices, but is another reason that transportation factoring is a niche that other factors may touch lightly.

In addition, factoring has its focus on the financial condition, pay history and solvency of the account debtors, much more than on the carrier itself. Start-ups, net losses, and deficit net worth prospects are not automatically declined by a transportation factor. A bad safety rating by the Federal Motor Carrier Safety Association (FMCSA) may be viewed in underwriting as a higher risk element than a weak balance sheet or income statement, if the latter is even available.

Larger carriers with annual revenue of $50 million or more have stayed with or gravitated to transportation factors from bank commercial lending or asset-based lending. In addition to higher advance rates, factoring is mostly covenant free. There are usually no periodic field exams. With many factors, there is no maximum facility “credit limit” or maximum advance limit in factoring terms. Instead, the factor’s credit limits are focused on the account debtors and establishing credit limits for maximum exposure. So, the facility can grow as large as the carrier’s fleet grows assuming the account debtors credit supports that growth. This is critical in good times for trucking. Average invoice amount increases with

GEORGE A. THORSON Triumph Factoring Division

rising freight rates and firms get more trucks on the road to take advantage of higher margins. The flexibility to quickly grow or contract with volume without going through a lengthy approval process is prized by the clients in this industry.

Pricing pressures in the transportation factoring marketplace have allowed large carriers to obtain rates that are equivalent to those offered by asset-based lenders. The industry is dominated by fixed rate products, although variable rate pricing is becoming more common for larger carriers. This is especially true with recent rising cost of funds to factors, whether private or bank owned. Longer terms required by shippers affect the market as well, creating discount rate contracts that price towards the number of days that an invoice is outstanding. Flexibility has been the key to retaining and acquiring clients in the rising prime rate environment. Providing ancillary services to help the trucking client survive and prosper in a challenging market has been of more value to the trucking firm during the current recession.

Transportation factoring on a large scale has remained a niche service area for an expanded group of factors. It is necessary to structure and plan for changes in the freight industry through both good times and tough times. Knowledge of the particulars of the freight industry are required. An understanding of the changes and innovations in transportation technology including load matching, carrier vetting, electronic logging and GPS tracking, payment networks and auditing, along with technical requirements by the account debtors is needed for the factor to be successful in this space.

George A. Thorson is chief credit officer, Triumph Factoring Division. He has more than 36 years of experience in commercial finance including factoring, asset-based lending, business evaluations, loan work out and field auditing. Prior to joining Triumph, Thorson was a principal in Collateral Risk

Management, Inc. and Credit Support International. George continues to serve as an industry expert and peer educator for the International Factoring Association and the National Association of Credit Managers. He received a B.S. in accounting from St. Cloud State University, and is an IFA Certified Account Executive in Factoring (CAEF).

For the factor, the transportation niche features each invoice as a completed transaction with dilution of one percent or less. Most small and midsize carriers work for about 9,000 freight brokers, who are accustomed to making about 60 percent of their payments to factors.

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Interview with Courtney Jeans, Head of Regions Business Capital

BY MICHELE OCEJO

Courtney Jeans is executive managing director and head of Regions Business Capital. Jeans joined Regions Business Capital in January 2022. With nearly 30 years of experience in the financial services industry, his career has focused on lending activities within the middle-market and large corporate sectors in both banking and specialty finance, where he has held positions in business development, portfolio management and risk management.

Jeans earned a BS and MBA from the University of Texas at Austin with a concentration in finance and marketing. Here, he discusses his first two years as head of Regions Business Capital, his goals for 2024 and his leadership style.

Please tell us a bit about your career trajectory.

I started my career in banking in 1994 as an officer development program trainee with Texas Commerce Bank in Dallas. Texas Commerce became JPMorgan Chase after several mergers over the next decade. My initial assignment was to lead the officer development program in my region, and shortly thereafter, I became a commercial banker focused on providing a complete suite of banking products to clients and prospects with revenues up to $500 million.

I began working in the asset-based lending industry in 2000, when I started as an underwriter and portfolio manager for middle market, large corporate and investment banking clients across the South, Southeast and West. During these roles, I focused on a concentration in retail and oil field services clients, where we financed working capital, acquisitions, organic growth, management buyouts and private equity transactions. We also completed pre-and-post-bankruptcy workouts, restructurings, and corporate liquidations.

In 2010, I transitioned into originations, where I provided sales coverage for 13 markets across the Southwest and Southeast over a period of eight years. In 2018, I was appointed as head of ABL in the Southwest region, which is the role that preceded my current position as head of Regions Business Capital.

You took the lead at Regions Business Capital last year. What have the last two years been like for you? Any surprises?

The last two years have been some of the most rewarding and exciting times in my career! We have so much opportunity in front of us, so we are focusing our efforts on the initiatives that will best help us build a stronger foundation for additional growth. This can be difficult when you are operating in an economic environment characterized by inflation, rising interest rates, and post-COVID recoveries. But, our experience positions us to serve clients through economic cycles. And an uncertain operating environment typically helps ABL lenders because our structures are more patient in comparison to traditional financing alternatives. In this ABL environment, it can be tempting to pursue short-term wins, but we are prudent risk managers, and we keep our eyes not just on short-term opportunities but, importantly, on what’s best for the client over the long term. That’s where real value is created. At Regions, we are part of a very supportive company that sees the value of our franchise, is willing to invest in our future and provides the stability for long-term success. That environment is important for continued career growth and development.

What are your goals for Regions Business Capital in 2024?

In 2024, we want to capitalize on positive momentum and acceptance of our strategic vision within Regions and drive market share growth through a coordinated approach with our business partners. Regions is relationship oriented, and it’s a key differentiator in how we go to market. We also want to continue to solidify our team, invest in the development of our associates, opportunistically add talent in growth markets and take advantage of best practices to further support our clients. We will also pursue technological advances designed to help us become more efficient

and deliver stronger value to our clients. Over the past 18 months, we have introduced a detailed sales strategy that will help us accomplish our growth objectives. In 2024, we will continue to focus on executing that plan!

One of your first decisions was to realign the team from a geography-based model to a functional model. Why and what have the results been?

The primary objective of moving to a functional model was to centralize our leadership team and promote consistent delivery of our products and services across the entire Regions footprint. This new structure allows us to leverage best practices, foster deeper relationships with our internal and external partners, promote efficient and more effective operating procedures, streamline communications, invest in the development of our associates and pursue thoughtful succession planning.

This issue of TSLwill take a deep dive into specific industries. Are there certain industries that Regions Business Capital focuses on and why?

Our strategic plan supports the pursuit of relationships in a wide variety of industries, and asset-based loans can be useful in a broad array of situations. Fortunately, our footprint includes high-growth markets across the Southeast, Texas and the Midwest that have many commodity-based businesses in industries like metals, chemicals, oil and gas, textiles, building products and food and beverage. We also support clients in the consumer goods, distribution, manufacturing, retail, equipment leasing, transportation, automotive and service sectors. Clients in these industries are often focused on growth or expansion in markets that are important to Regions’ overall strategy of supporting key contributors to community prosperity and well-being.

Could you share a pivotal experience or challenge you’ve faced in your career that significantly influenced your leadership style and decisionmaking process?

My leadership style and decision-making process originate from mentors and leaders who have influenced my life and career since my days in college. I consider myself a servant leader, leading by example. This means soliciting feedback to encourage “buy in”, creating an environment where associates feel valued and can provide input on important strategic matters, driving results, and supporting personal and professional development. I feel strongly that Regions’ culture helps facilitate this approach in that we believe in doing what’s right, putting people first and making a difference in our communities and the lives of our associates. It’s an exciting time to be at Regions and I am happy to have a leadership role in helping us shape the future of our organization!

Michele Ocejo is editor-in-chief of The Secured Lender and director of communications for SFNet.

COURTNEY JEANS Regions Business Capital

SFNet 2023

President Jennifer Palmer Reflects on Year of Growth and Change

BY EILEEN WUBBE

In this interview, she discusses her accomplishments and lessons learned.

What achievements are you most proud of in being SFNet President? Was there anything you wanted to see happen but didn’t (yet)?

I am proud of my focus on building relationships with other trade organizations. The goal from the beginning was to expand awareness and consideration for partnering with SFNet. We will continue to nourish and cultivate these connections after the presidency ends. Overall, we made excellent progress in building new relationships. For example, we have worked with the International Housewares Association over the past few months, which has led to presenting at local events, and we will be speaking at their annual event in October. I also tapped into past relationships with the New York Bankers Association and Specialty Food Association and am excited to see those relationships evolve. While we are still working on cracking into the National Retail Federation and National Manufacturers Association, I am proud of our inroads and the journey to foster crossindustry connection and collaboration.

Were there any moments in serving as SFNet President this past year where you had to step outside your comfort zone?

I quickly realized that this year’s bank failures impacted our diverse members differently. Being sensitive to the breadth of interests and viewpoints was vital to effectively representing our organization. This includes balancing relationships with other trade organizations to ensure the connection is beneficial to all members. Leaders are constantly presented with new challenges, and as president of such a dynamic and diverse organization as SFNet, it requires being open to learning, listening, and leading.

A lot has changed in your work life outside of SFNet, having started JPalmer Collective in March 2023. Can you give our readers an update on how the company is doing?

Yes, it has indeed changed. Almost immediately after becoming president, my 16-plus year tenure with GFI ended. I have always believed that moving forward is the only way to thrive.

Given my experience growing Gerber Finance from a startup to one of the leading ABL companies, I could think of no opportunity as exciting as starting JPC. The company is growing quickly. We have a fantastic team, a clear focus on fast-growing companies, particularly in the natural products space, and a commitment to women-owned and led firms. It has not been without its challenges, but it has been incredibly rewarding. In last year’s interview, you mentioned your main priorities as SFNet president were:

Continue to strengthen and grow the organization and make sure it is a group that inspires people of all levels to get involved;

Build on SFNet’s robust education program* to support the next generation of leaders and help them accelerate their careers and become even more connected with other members and Expand outside our industry and create meaningful connections with other relevant trade associations in the core industries our members serve, such as manufacturing, retail, and wholesaling.

Yes, we had a lot of goals, and one year went by quickly, but thanks to the commitment of the SFNet Executive Committee, SFNet Management Committee, and volunteers, coupled with the passion and hard work of the SFNet team, there was a lot accomplished, and engagement scores are the highest that they have ever been. We had over 500 volunteers spanning half our member companies serve on committees. That’s commitment!

Education was at the forefront of our priorities. This past spring, SFNet’s Education Committee launched its leadership program with the NYU Stern class, Impactful Leadership for High Potentials. One of my senior leaders attended and said it was the best educational program of her 15-year career. I look forward to seeing this leadership program grow and scale. To recruit more talent into our industry, SFNet launched a guest lecture program. After my presidency ends, I have five college visits lined up to raise awareness of and excitement for our

There is obviously a lot of uncertainty in the marketplace, and nobody is immune, but SFNet is an excellent source of education/resources for all its members. Now more than ever, it is essential for our members to stay connected and to be at the forefront of what’s happening in the industry.

industry with our future leaders. Continuing to create visibility and understanding is something I will continue to prioritize. As shared, getting attention to our industry and the benefits of SFNet was a key focus for me. Especially this past year, it’s been difficult for business owners/to hear headlines and panic, but SFNet has a breadth of resources to help members navigate through challenging times.

What lessons or takeaways do you hope to take with you from your time as SFNet president to JPalmer Collective?

I am grateful for the incredible opportunity to work with many talented new and former colleagues. And I am looking forward to maintaining those relationships moving forward. I have deep appreciation and respect for the dedication of our CEO, Rich Gumbrecht and his team to our industry. Although I have been actively involved in SFNet for many years, this past year opened my eyes even wider. I saw how hard and cohesively the Board, committee members, and team strive to make our organization successful. They constantly reflect and learn from past experiences and plan new value opportunities and growth for the organization. To JPalmer Collective, I take with me so many leadership learnings, relationships, and the power that collaboration provides to any successful team.

What challenges and opportunities do you see for SFNet, and the industry itself, in the next year?

There is obviously a lot of uncertainty in the marketplace, and nobody is immune, but SFNet is an excellent source of education/resources for all its members. Now more than ever, it is essential for our members to stay connected and to be at the forefront of what’s happening in the industry. For example, SFNet is the only trade organization tackling local legislation state by state. In some states, legislation is making it more difficult for small businesses to borrow from lenders and for small lenders to conduct business. SFNet’s Advocacy Committee comprises our top attorneys, independent lenders, and service providers who have created meaningful change together. There will definitely be more change in our world, which SFNet understands means more opportunity. Together, we will always be stronger.

Do you have any words of advice for incoming president Barry Bobrow?

Nope, he doesn’t need my help. He has this. Barry clearly has had a very successful career, and SFNet is lucky to have him at the helm as he can bring his valuable experience to the table. He has helped me during my three years on the Management Committee. I thank him. I am excited about the Executive Committee and Management Committee welcoming so many incredible leaders; I am especially happy for Betty Hernandez, who joined the Management Committee. Betty has added value to SFNet in countless ways and will be an outstanding addition to this talented group.

If there is anything I didn’t ask that you’d like to mention, please do!

I am a passionate advocate for making financing more equitable for women. I am impressed by SFNet’s commitment to DEI and all its efforts to bring more new talent into our industry. As an industry, we need to change, but SFNet is leading the way; I am trying to do my part, too, but we all must continue to do even more.

Eileen Wubbe is senior editor of The Secured Lender.

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Professional Development through online and on-demand education and leadership programs

Industry Resources such as annual data studies, market sizing reports and the Compendium of Secured Finance Law

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Support our Corporate Fundraising Campaign today.

CROSS-BORDER FINANCE ESSAY

TLC For Your Dutch Collateral: Some Practical Considerations

BY CAMILLE VAN LIEBERGEN

Earlier this year, SFNet announced its second Cross-Border Finance Essay Contest, sponsored by Goldberg Kohn Ltd. Members of SFNet’s International Finance and Development Committee judged the essay submissions on content, originality, clarity, structure and overall contribution to furthering and expanding understanding and discourse within the field of cross-border finance. This essay won second place and focuses on how tweaking the borrower’s customer contracts can strengthen your position as secured lender.

The authors of the winning essays have been invited to participate on a panel at SFNet’s 79th Annual Convention in Orlando, FL, November 15-17.

When a U.S. lawyer and a Dutch lawyer talk about antiassignment clauses , each might misconstrue what the other is talking about. This is caused by differences in law. In the U.S., anti-assignment clauses typically preclude the assignment of the contract itself, but not the assignment of accounts receivable arising from that contract. In the Netherlands, such clauses do preclude the assignment of accounts receivable arising from such a contract. An agreement between parties providing that accounts receivable are not assignable is invalid and unenforceable under the Uniform Commercial Code (“UCC”).1 Dutch law has no such rule. If a Dutch contract contains an anti-assignment clause, it becomes legally impossible to transfer the accounts receivable to another party. Assignment in violation of such a clause does not only constitute a breach of contract; the accounts receivable are simply not capable of being transferred to another party. Dutch accounts receivable that cannot be transferred, cannot be pledged either. 2 A U.S. lender that is lending against Dutch accounts receivable should keep this in mind.

You may ask: When do I have to deal with Dutch law governed accounts receivable? This might be more often than you would think. All it might take is to finance a US parent that happens to have a Dutch subsidiary. In that scenario, the Dutch subsidiary (“DutchCo”) may be a borrower. DutchCo probably has multiple customers. As a secured lender, you secure your loan by obtaining all-asset security. In particular,

you seek a security interest in the accounts receivable of DutchCo, because they represent a large portion of its assets. Suppose DutchCo is in default and you decide to collect the pledged accounts receivable. As you want to proceed with collection of the accounts receivable, you are being told that these are not subject to a valid pledge because the underlying customer contracts contain an anti-assignment clause. As a consequence of this anti-assignment clause, the accounts receivable are not validly pledged under Dutch law. You end up empty-handed.

CAMILLE VAN LIEBERGEN NautaDutilh

Fortunately, a solution is at hand. Strategically negotiating on the customer contracts applicable in the relationship between the borrower and its customers can help strengthen your position as secured lender. It is worth negotiating with your borrower on the elimination of anti-assignment clauses from the customer contracts.

In this essay, this solution will be further explained. When referring to the contracts or terms and conditions applicable in the relationship between the borrower and its customers, I will use the term customer contracts. The customer contracts of the Dutch borrower may or may not be governed by Dutch law. This essay only covers customer contracts that are governed by Dutch law.

Anti-Assignment Clauses Under Dutch Law

Let’s start by focusing on the way Dutch anti-assignment clauses can affect a secured lender’s collateral.

In many sectors of the Dutch economy, it is standard practice to include anti-assignment clauses in customer contracts. Such clauses state that the accounts receivable arising from the contract are non-assignable and typically read as follows:

Neither this Agreement nor any of the rights, interests or obligations under the Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either party without the prior written consent of the other party.

The ability to stipulate that accounts receivable are not assignable fits into the Dutch concept of freedom of contract. Parties are free, within reason, to shape the content of their contract. A debtor may not want to keep track of whom they have to pay. Or a debtor may simply not want to deal with anyone other than the original creditor, for example because a new creditor might be stricter in enforcing the receivable. Including an anti-assignment clause in the customer contracts assures that the debtor has to pay the amount that is due to no one other than the original creditor. 3

Although these anti-assignment clauses might appear innocuous at first glance, they have consequences for the collateral package of a secured lender. An example of Dutch case law in which the secured lender ended up emptyhanded, is Oryx v. Van Eesteren 4 This case concerned lender Oryx (Holding) B.V., who granted a loan to borrower Elands Natuursteen B.V. As security for repayment of the loan, liens were established on all Elands’ existing and future accounts receivable. Elands entered into an agreement with one of its customers, EVN.

The customer contract between Elands and EVN contained an anti-assignment clause, according to which Elands was prohibited from assigning any accounts receivable arising from the contract to a third party. At some point, Elands was in default under the loan. Oryx decided to enforce its right of pledge on the accounts receivable, including those arising out of the customer contract with EVN. When Oryx tried to collect the accounts receivable from EVN, EVN refused and pointed at the anti-assignment clause included in its customer contract with Elands. The question arose whether this anti-assignment

clause precluded the validity of the security assignment in favor of Oryx. The Dutch Supreme Court confirmed that (i) the ability to assign accounts receivable can be limited by an anti-assignment clause like that agreed upon between Elands and EVN, and (ii) such a clause not only leads to a breach of contract but also to the invalidity of the assignment of such accounts receivable. 5 As a result, Oryx had no valid pledge on the accounts receivable and ended up empty-handed.

To reassure tempers: not all anti-assignment clauses included in Dutch law governed contracts automatically lead to non-assignment of the accounts receivable arising out of such a contract. It should follow from the wording that parties actually intended to affect the assignability of the accounts receivable in itself. 6 If this is not the case, a valid assignment is still possible, but would constitute a breach of contract.

The bottom line is that contracting parties can agree to exclude the transferability of accounts receivable and thus invalidate any purported assignment or pledge with effect upon any third party.

Dutch legislative proposal “Wet Opheffing Verpandingsverboden”

It is worth mentioning that there is currently a legislative proposal pending in Dutch Parliament to eliminate the ability to contractually limit the assignment or pledging of a business’s accounts receivable (the “Act”) 7. If the Act is adopted, contractual anti-assignment clauses will no longer be enforceable. The aim of the Act is to broaden the credit potential of borrowers, enabling them to use their accounts receivable as security for their financing (regardless whether their customer contracts contain an anti-assignment clause). Besides, the Act restores the level playing field with surrounding countries where the effect of anti-assignment clauses has already been restricted or nullified. 8

The attempt of the Dutch legislature to put a ban on antiassignment clauses can hardly be found surprising, given the immense role of receivables in financing transactions. The Act puts an end to the uncertainty as to whether certain accounts receivable are capable of being pledged or not. This clarity is highly desirable in the cross-border finance practice.

It is still unclear if and when the Act will be adopted. Until the Act is passed, it is of importance to check whether the borrower’s customer contracts contain anti-assignment clauses.

TLC for Your Dutch Collateral

So how should you as secured lender deal with this in practice? Ideally, you identify in advance whether the borrower’s customer contracts contain anti-assignment clauses. Suppose you requested the customer contracts from the borrower and after a first review you notice these contain anti-assignment clauses. What to do?

CROSSBORDER ESSAY

As a secured lender, you can negotiate with the borrower about what is included in its customer contracts. Ideally, any anti-assignment clauses will be eliminated. You can agree that the borrower will remove any such clauses from its existing or future customer contracts, or both. Which solution suits best depends on the borrower’s type of business. Several scenarios are conceivable.

Scenario 1

Suppose the borrower has many customers with whom it enters into standard, short-term contracts. These contracts are not negotiated, but are subject to general terms & conditions applicable to all customers. Once these short-term contracts expire, the borrower will enter into a new contract with either existing or new customers. The moment a new contract is entered into is yet another opportunity to negotiate the content of the contract and to eliminate any anti-assignment clauses.

Scenario 2

Another scenario could be that the borrower has several customers but uses bespoke contracts only, negotiated on a customer basis. Such tailor-made contracts are often used only if not many different customers are involved.

Scenario 3

Lastly, it could be that the borrower has only a few customers with whom it entered into standard, long-term contracts. In that case, the recourse of the secured lender is limited to these few customers only. Getting a valid right of pledge over these accounts receivable is thus even more essential.

Ideally, the borrower commits to removing anti-assignment clauses from its future customer contracts. This can be done by including a covenant in the finance documentation (e.g. the Dutch Security Agreement) along the following lines:

The Pledgor shall not include any limitations or prohibitions to pledge receivables owed to it in any of its standard customer

contracts or general terms & conditions.

Committing to such forward-looking covenant should not be too burdensome for the borrower, assuming it enters into standard, non-negotiated contracts with its customers. It only concerns future contracts, which are yet to be entered into. For the secured lender, it increase the likelihood that accounts receivable arising from future contracts can be validly pledged. It will strengthen its position as pledgee by broadening the scope of the collateral. A forward-looking covenant may particularly be helpful in Scenario 1, where contracts are often renewed. Due to such renewal, the abovementioned obligation will apply to all customer contracts within a short period of time.

The borrower may be in a different position if it does have standard contracts, but these are negotiated with all or some of its customers. In that case, it may be burdensome to agree that no such contract will contain an antiassignment clause. However, a best efforts commitment might be something the borrower can commit to. The covenant could then read:

The Pledgor shall use best efforts to not include limitations or prohibitions to pledge receivables owed to it in any of its customer contracts.

If you want to go a step further, you could negotiate that the borrower should reach out to its existing customers to obtain a waiver of any antiassignment clauses contained in existing customer contracts. This could be done by including a covenant in the finance documentation that may read like this:

The Pledgor shall use its reasonable endeavours to obtain a waiver from any debtor of Receivables of any limitations or prohibitions to pledge any such Receivables, to the extent the relevant legal relationship with such a debtor contains such limitations or prohibitions.

The attempt of the Dutch legislature to put a ban on anti-assignment clauses can hardly be found surprising, given the immense role of receivables in financing transactions. The Act puts an end to the uncertainty as to whether certain accounts receivable are capable of being pledged or not. This clarity is highly desirable in the cross-border finance practice.

This may be particularly helpful if the borrower has longterm contracts with only a few customers (Scenario 3) in which case you could draft the covenant to be an outright obligation, not just an obligation to use “reasonable endeavours.” If anti-assignment clauses are removed from these long-term contracts, you significantly increase the secured lender’s position as pledgee. The scope of the collateral will then be extended to accounts receivable arising from existing contracts as well. However, renegotiating existing commercial contracts might not always be desirable from a borrower’s point of view. It might be a big commercial ask, especially if the borrower uses bespoke contracts (Scenario 2). Renegotiating each customer contract may be too much of an administrative burden.

Regardless of the specific scenario, one central message applies to all secured lenders: tweaking the borrower’s customer contracts might be helpful in obtaining a stronger position as pledgee.

Conclusion

Negotiating with a Dutch borrower to modify its customer contracts can be an easy fix to strengthen the position of a secured lender. By eliminating anti-assignment clauses from the customer contracts, you increase the likelihood that accounts receivable are validly pledged This can be done by including a covenant in the financing documentation that obligates the borrower not to use anti-assignment clauses in its relationship with its customers. Such covenant can be forwardlooking, meaning that it only applies to customer contracts entered into after closing of the financing. However, if you want to go a step further, you could make this obligation apply to existing contracts as well. This should not be too burdensome for the borrower. In the end, the interests of the borrower and lender are aligned: both want a financing on good terms, with low risk and less costs. In the end, obtaining good collateral serves the interest of both lender and borrower: By providing collateral, the borrower’s credit potential increases and it reduces interest rates.

Camille van Liebergen is a senior associate with NautaDutilh. She works in the Dutch Banking & Finance team in New York. She advises banks, corporations, strategic investors and sponsors on various national and international financing transactions. She specialises in asset-based finance and acquisition finance. Before joining NautaDutilh in 2022, Camille worked for over five years as a lawyer at another leading Dutch law firm.

van Liebergen studied at Leiden University (LL.B. and LL.M.) (2016) and Stellenbosch University (LL.M.) (2015). In 2022, Camille completed the MBA Highlights Programme at INSEAD in Fontainbleau, France.

van Liebergen is admitted to the Amsterdam Bar Association.

1 UCC §Section 9-406(d)(1).

2 According to Article 3:81(1) in conjunction with Article 3:228 of the Dutch Civil Code (“DCC”), pledges can only be established on transferable property. If, therefore, a creditor and a debtor agree that the accounts receivable are non-transferable, it follows from these articles that such claim cannot be pledged either. This is confirmed by Dutch case law. See Dutch Supreme Court 1 July 2022, ECLI:NL:HR:2022:984 (Rabobank / Ten Berge q.q.).

3 Exclusively for receivables, Article 3:83(2) of the Dutch Civil Code (DCC) determines that their transferability can be prohibited contractually.

4 Dutch Supreme Court 17 January 2003, ECLI:NL:HR:2003:AF0168 (Oryx / Van Eesteren).

5 Via art. 3:98 of the Dutch Civil Code (DCC), all this also applies to the pledge of the accounts receivable in question.

6 Dutch Supreme Court ECLI:NL:HR:2014:682 (Coface / Intergamma).

7 In Dutch the “Wet Opheffing Verpandingsverboden”.

8 See for example Germany, Austria and the United Kingdom, where the absolute effect of anti-assignment clauses has already been restricted or abolished.

9 The Act is pending in Dutch Parliament since May 2020 and consideration of the Act was at a standstill for over two years. In June 2023, the Act will be debated again.

SFNet Committee Spotlight: Convention Planning Committee

This column highlights the hard work and dedication of SFNet committee volunteers. Here we speak with Don Clarke, president, Asset Based Lending Consultants and chair of SFNet’s Convention Planning Committee. The Convention Planning Committee helps with the development of panels, speakers, venue selection and more for the SFNet’s largest event of the year, the Annual Convention.

TSL: Please provide us with some background on your career.

Donald Clarke: I am the president and chairman of AssetBased Lending Consultants, Inc., as well as Don Clarke Enterprises (DCE), with nearly 45 years of extensive experience in various aspects of asset-based lending and leasing. My expertise spans asset-based lending, quality of earnings certification, Fortune 500 corporate lending continuing education, and more.

In addition to my leadership roles, I have a notable history with the Asset-Based Lending Institute (ABLC), where we have been providing field examination and due diligence services to both national and international commercial and community banks since our inception in 1986.

My educational journey began when I graduated with O-Levels from the University of Cambridge. I then furthered my education by graduating from the City University of New York in 1972. Subsequently, I embarked on a career that led me to prestigious financial institutions, including roles at Bankers Trust Co. (NY) and the Bank of New York (NY). Before founding the ABLC company group in 1986, I held various significant positions such as vice president, chief financial officer, and chief credit officer at Southeast Bank Leasing.

I also served as an international instructor, specializing in various aspects of asset-based lending, including underwriting, financial statement analysis, account management, field examinations, and inventory lending. With over 30 years of instructional experience, I held a senior instructor position with the Secured Finance Network (SFNet) and was honored with the prestigious Harry H. Chen Memorial Award of Excellence in 2019. Furthermore, in 2021, I received SFNet’s Lifetime

Achievement Award and was inducted into SFNet’s Hall of Fame. My contributions also extended to serving as the Education Committee chair for SFNet’s 2020-2021 Executive Committee.

Throughout my career, I have had the privilege of teaching over 5,000 students internationally, focusing on the disciplines of secured lending. I facilitated General Electric Commercial Finance Investment Analyst courses in various global locations, including Chicago, London, India, and Sydney, Australia. Additionally, I conducted seminars extensively in England and Ireland for major European financial institutions, including Lloyds Bank (London), National Westminster Bank (London), Barclays Bank (London), Bank of Ireland (Dublin), RBS (London), and General Electric Capital (London, Delhi, India, and Sydney, Australia).

In 2022, I launched the Asset-Based Lending Institute (ABLI) that introduced the first postgraduate diploma course, primarily targeted at college graduates aspiring to enter the asset-based lending field and ABL professionals seeking career advancement.

Presently, my commitment to knowledge sharing continues through seminars focused on risk analysis and loan structuring.

Lastly, I am the author of the first industry recognized textbook on asset-based lending, titled Asset-Based Lending Disciplines. Originally published in 2006 and updated in 2022, this comprehensive resource covers field examinations, operations, and accounts manager functions. Notably, the U.S. Small Business Administration (SBA) and JP Morgan Chase have recognized its value as a vital training resource for their staff, nationwide.

For someone who’s reading this and may want to join SFNet’s Convention Planning Committee, how would you describe it to them?

The Convention Planning Committee (“CPC”) is made up of industry professionals who volunteer to serve in this capacity. As a CPC member we float the topics to be discussed, the main theme for the convention and who the panelists and keynote speakers should be, based on the different topics and the person’s ability to meaningfully contribute to such topics.

DONALD CLARKE Asset Based Lending Consultants

What does the Committee do? How soon after the Annual Convention in November 2022 did you begin to meet to start planning the 2023 Convention?

So, within the main CPC, we establish sub-committees so we can be more granular in our planning efforts. In my case as incoming chair for 2023, I served as assistant chair and apprenticed under last year’s chair (2022) Jeremy Harrison of ABN Amro, to get acclimated with the process. I took notes and immediately engaged my staff at ABLC to help me with logistics and planning. So, in short, I have been going at this for about 18 months.

How much time is involved if you’re a Convention Planning Committee member? How often does the Committee meet?

Thanks to the SFNet staff Rich Gumbrecht, Jeff Walsh, Scott Clifford, Lisa Riegel and others doing a lot of the organizational work, my staff and I were never over-taxed at any time. At meeting time, the SFNet staff would show up well prepared with ideas and research which would make our lives a lot easier.

As a committee, we meet once per month initially, but then call impromptu meetings to discuss emerging issues. As we move closer to the convention, we have weekly Teams/Zoom meetings.

What are some of your biggest achievements/wins in planning this year’s convention?

We have a diverse list of keynote speakers and panelists that truly represent America!

We unanimously arrived at our main theme “Built for the Moment,” which I believe underscores some of the current economic uncertainties and stresses the relevance and agility of asset-based lending in these uncertain times.

What is the process in determining the keynote speaker for this event?

The process of choosing a keynote speaker begins with choosing someone who we think would add value to our theme, but is also entertaining and engaging. That’s why this year’s keynote speaker, Daymond John of Shark Tank, is so relevant as not only a business owner/investor but has a healthy sense of humor and is engaging. Secondly, Kim Ng of the Florida Marlins, the only female executive at the highest level in baseball and of Asian descent, brings great diversity and charisma to this year’s convention.

For someone reading this and debating on attending this year, what would you say to encourage them to attend? What is unique about this year’s convention vs. in prior years?

So, I have been attending these conventions for over 40 years as the CFA and now SFNet and I believe this is the most

SFNet Convention Planning Committee Members

Chairperson

Donald Clarke, Asset Based Lending Consultants, Inc. Vice Chairperson

Michael Monk, Amerisource Business Capital

Barry Bobrow, Regions Business Capital

Lin Chua, InterNex Capital

Bethani R. Oppenheimer, Greenberg Traurig, LLP

Paul D. Schuldiner, Rosenthal & Rosenthal

Marshall C. Stoddard, Morgan, Lewis & Bockius LLP

Barry Bobrow, Regions Business Capital

What do you like about being on the Convention Planning Committee?

Being on the planning committee is a great opportunity to learn about important industry issues while also taking a leading role in shaping the experience of all the attendees at the annual convention.

What are you especially looking forward to for this year’s Annual Convention?

This year’s conference is chock full of content you won’t want to miss, including a keynote address from Kim Ng, general manager of the Miami Marlins, and the first woman to hold a GM position in Major League Baseball. I’ll be there, along with everyone you want to spend time with in the industry. Mark your calendar for November 15-17 and I’ll see you in Orlando!

Paul Schuldiner, Rosenthal & Rosenthal

What do you like about being on the Committee?

I have enjoyed collaborating with many of my esteemed colleagues from different aspects of the industry. I always learn from them and can hear firsthand on the issues of interest and concern that affect our industry. It is an honor to help shape the annual conference which has always been the marquee event for the commercial finance industry.

What would you say to someone who is interested in joining the Committee next year?

If you are interested in playing a role in shaping the education and networking opportunities for the betterment of our industry, then this is the committee for you!

What are you especially looking forward to at this year’s Annual Convention?

I am looking forward to networking and exchange of ideas with my colleagues in person. I am looking forward to the Amazon panel, the factoring panel, and the sessions on views from the large and smaller players in the industry.

consequential convention of our times. We have rising interest rates, talks of a recession, global tensions all at play. But, ABL has been here before and successfully weathered the storms. Thus, our theme “Built for the moment”!

For someone who has never attended an SFNet Annual Convention, why should they consider going to this year’s in Orlando for their first one?

If you’ve never attended one of our conventions, then make #79 the one you attend. After 79 years we are still here and relevant. Also, this year is near Disney World, and we encourage attendees to bring both kids and grandkids along for a fun weekend following the convention! Come and hear what your contemporaries are saying and become a part of the discussion! Your moment awaits you here, November 15-17, 2023.

When you’re not busy with ABLC and SFNet what do you enjoy doing?

Me and not busy is an oxymoron! I own several thriving businesses, UPS franchises and real estate investments, have a fairly busy speaking circuit, all of which keep me busy, along with my wife of 46 years, four children and 10 grandkids. Somehow, I find time to play a bit of golf and I am a 10 handicap!

Eileen Wubbe is senior editor of The Secured Lender.

nFusion Capital: Fast, Creative and Optimistic

nFusion Capital is a private working capital finance company delivering customized financing solutions to small- and medium-sized businesses. Headquartered in Austin, TX, the company serves clients nationwide with offices in Phoenix, Pensacola, Denver and Atlanta. Founded by a team of entrepreneurs from the finance and real estate world, nFusion has a unique perspective because its founders were business owners before they were lenders – and they have seen the challenges businesses face when there isn’t adequate working capital.

BY EILEEN WUBBE

nFusion Capital was founded in late 2018 by CEO Jason Lippman, after the factoring company he had been working with, Far West Capital, was purchased by a bank. It started as a independent factor, with a transportation focus, before expanding into other industries, including construction. nFusion has grown from three employees to over 25.

“Our strategy was not to be the cheapest factor, but to be the fastest and most creative, and that has worked well for us,” Lippman explained. “We have doubled the size of our overall portfolio every year since our founding. In 2020, at the start of the pandemic, we purchased an ABL portfolio –less than $5 million – and we’ve grown that practice tenfold. When you’re a brandnew factoring company and using just your money, you have to start with really small deals, and close a lot of them. That allows you to diversify your risk, make mistakes, and ensure you have the right systems and processes. Once you’ve done that and grown the company and have the right people in place, you can graduate to larger deals. Our smallest transaction now is what used to be our maximum when we started. In our first year, our largest transactions were $100,000, so if we made a mistake it was limited to that exposure. Now, our minimum factoring facility size is $250,000 and our minimum asset-based lending facility size is $1 million. What hasn’t changed over time is our core brand promise – to be the fastest and most creative.”

JASON LIPPMAN nFusion Capital

Business Owners Before Lenders

Both Lippman and CFO Amity Mercado were business owners before launching nFusion, which gave them a unique perspective on the issues clients face.

“Anyone who has not had a direct responsibility for making payroll cannot relate to the pressure a business owner is under with respect to working capital,” Lippman said. “Unless you’ve been in that position before – an entrepreneur on Thursday night at 8 p.m. trying to figure out which client is going to pay you in order to make payroll tomorrow – you don’t know what’s going through the entrepreneur’s head, how lonely that is, how emotional that is. I’ve been there before. I’ve missed payroll, I’ve borrowed to make payroll. I’ve answered the phone and told people I couldn’t pay them. You can read stories about it, but until you’re the one who has to call an employee and say they’re not getting paid and ask them to wait until next week and it’s all going to be ok, you just don’t know what that’s like and how it affects your decisions.”

Apart from being the fastest and most creative, nFusion looks at every deal as the last deal they’ll ever look at, with a lot of focus. Lippman says the company doesn’t apply arbitrary rules used on previous deals. Every business, its customers, and its situation are unique.

“We are optimists, always starting from a position of ‘yes,’ and we aggressively work on behalf of our clients to help ensure their success. We take the time to understand their business and specific cash flow challenges, then quickly craft the right financing program to solve them.”

Some situations do not work out, but nFusion’s attitude is to always start with how to solve a problem, allowing their team to be creative and illustrate its company structure.

“We don’t have a large impersonal committee. It’s just us. Sometimes, it doesn’t work out, and we must be comfortable that some of these deals will be workouts, and we have to work through those. But you can’t say that’s a mistake; it’s just the nature of our business.

“We have one client in Chapter 7 now, for example, and knew exactly the risk going into it. We gave them every opportunity to succeed, but we can’t run their company for them. If I went back and looked at the same exact situation, we’d still do that deal again. We made the right decision, given the information on hand, and we’re now working through it. That’s just one company. We also provided financing to 50 other companies that didn’t file bankruptcy, so we got it right for those 50.

“Loan committees may not understand that. Their thought process is to make sure that never happens again. That’s not the business we’re in. You can’t serve our customers that way. You have to have a pretty optimistic view for all the different situations, and this is what happens when a sales guy starts a factoring company.”

Further differentiating nFusion is its asset-based lending construction financing platform. A challenging industry; there aren’t many active lenders in the space. In addition to the progress billing nature of the industry, there is a subcontractor lien risk not

common in other industries.

“You have to have employees that know the construction industry, the players and the terminology, so they can review contracts and invoices and help clients identify issues before they become problems,” Lippman stressed. “We have found it’s much easier to teach asset-based lending to someone with a construction background than to teach construction to an assetbased lending person. It’s also a sign of how much deeper we are embedded with our clients regarding their financials and financial performance, down to the contracts, invoicing, and backup. It’s being a good steward and fiduciary to make sure they are doing everything they can to protect their collateral, which is what we’re lending against.”

Company Achievements

nFusion’s approach and focus haven’t gone unnoticed in the industry. In early 2023, the company was named a winner of the M&A Advisor’s 17th Annual Turnaround Award for Restructuring of the Year in the $50MM to $100MM category for its role in the restructuring of an oil and gas equipment manufacturer. Another highlight, Lippman noted, is doubling the size of the portfolio each year.

“It was one thing to double when we were a smaller company, but now given our size, it’s quite something,” Lippman said. “Each year I say we won’t double, but I’ve been wrong every year.”

“The highlight of the year is being able to double our senior line and add another participant in this market. Banks are very tight; interest rates are going up. It’s a huge benchmark. Current challenges in the general banking environment are a double-edged sword. On the one hand, it creates many opportunities for us to grow as banks have become more conservative, but on the other hand, it is more difficult for commercial finance companies to grow and expand their senior facilities in this environment. Doubling our credit line in this market is a testament to the bank’s faith in our team and our consistently generated historical performance.”

Looking ahead, nFusion plans to continue to grow the business so it can serve more customers and increase the amount of support it provides, allowing them to build out the team and its technology.

“We’re not under any pressure to get the company to a certain size, and I don’t have any plans on an exit,” Lippman added. “We want to continue to grow the company safely and profitably based on what the market allows. Right now, we’re very bullish on this market. It’s the best market in which to be a factor/ABL lender: a good resilient economy, sales going up for the majority of clients we look at, and banks being limited in the services they can offer. We see larger, higher quality opportunities over the next 12 months, so we want to aggressively grow the portfolio and increase our quality.”

Eileen Wubbe is senior editor of The Secured Lender.

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