Lenders and Factors look for collateral to secure their finance transactions. There are instances when these two types of finance companies cannot provide their services to the same client. If a client has very limited assets that are fee and clear of loans or liens, then it stands to reason that two finance companies may not be able to exist for the one client. Neither would want to advance money without sufficient security/collateral behind it. That may not always be the case however. Understanding how both conventional and non-conventional transactions can co-exist for one client will help to provide answers for a prospect, and will also improve the broker’s credibility as a knowledgeable source for business finance needs.
A lender that provides equipment leasing may look to secure its finance transaction with all of the borrower’s assets. However if the client also needs factoring, it is very likely that the leasing company will secure its transaction with the leased equipment only, allowing the factor to use the invoices/accounts receivable as collateral, thus making room for another finance facility. Sill another example would be a lender advancing against commercial real estate that has secured its transaction with the property and all other assets. If the value of the property is appropriate with the formulas used by the real estate lender then the other assets can be freed up to provide collateral for a factoring or purchase order finance transaction.
In still another example, the same collateral type can be sliced and diced to provide collateral for two different finance facilities. For example a healthcare related factoring transaction in which the client bills both medical insurance companies and commercial entities such as hospitals, hospices, skilled nursing facilities, assisted living and other medical providers. In this case we can have two factors, one collateralized by the healthcare receivables and the other secured by the non-insurance type payors. This type of “carve out” is very often used to allow the two finance facilities the ability to fund and remain secured by assets.
Conventional lenders and non-conventional lenders can participate in the same finance project as long as the collateral securing each party is sufficient in value to give each its own comfort level.