Gary Honig is the owner of Creative Capital Associates, Inc., a commercial finance company that has been providing small businesses with working capital for close to 20 years. He works with entrepreneurial companies nationwide adding value by offering his extensive knowledge of business problem solving. We had a chance to chat with Gary about the benefits of factoring for small businesses, especially those who are trying to expand.
Tell us a little about your background. What makes you the proudest about leading Creative Capital Associates?
Well, I come from the technology industry where I was involved in startups for quite some time. My experience in fine arts has created a great foundation that lets me think outside the box. This comes in handy when confronted with finding a quick solution to a sometimes serious situation.
At CCA, we are very proud of getting deals done efficiently. Our corner of the financial services industry is focused on small businesses that need working capital and need access to it quickly.
What are some of the trends taking place in the commercial financing industry right now?
The biggest trend by far is the introduction of new forms of fintech lenders who are expending various amounts of resources to capture market share of this immature market. The jury is out on the long-term side effects of charging relatively high returns to companies that are looking for working capital.
The global factoring industry seems to be doing very well these days. Why is factoring such a viable option for many companies today?
The factoring industry has been providing capital for centuries. Even so, most small business owners are very unaware of receivables factoring as a viable option to expand their company.
For the most part, the factoring industry goes in cycles and follows the trends of the economy and institutional banking. When banks are being very open about lending criteria (in strong economies) factoring is in the background. But when the economy contracts and pulls back, banks become more conservative and are lending less; then invoice factoring becomes a good second option for borrowing. Factoring can be secured quickly with relatively easy-to-prepare documentation.
Finish this sentence: “The biggest advantage of factoring that many companies don’t usually know about is…”
…the ability to leverage the creditworthiness of customers to allow for access to working capital. What this means is that we see that our client has completed a job and is waiting for an invoice to be paid. If the customer who owes payment on the invoice has a good credit rating, then the financial condition of our client is less material. Our client may have negative net worth on the balance sheet, or tax problems, or just a short business history. But as long as they invoice a good customer, they can get paid today on an invoice while the factoring company waits the net 30 days to get repaid.
What are some the reasons a small business might need accounts receivables factoring?
In my experience, a small company that is either expanding their labor force or has a new product they are manufacturing is a good candidate for invoice factoring. I often tell my clients to go out and find bigger fish and land larger contracts now that we are providing the backstop they need to help pay for the expansion.
Typically, a small business will reach out to a bank in order to qualify for an institutional loan. For whatever reason, if they fail to secure funding, invoice factoring is a perfect fallback for specific industries and scenarios.
If a company decides to enter into a factoring agreement in order to help them meet payroll on time, does this reflect well on the company’s leadership?
Often when we are contacted by an owner who has no experience with factoring and only has heard some misinformation, they ask if we can avoid letting the customers know about our arrangement. This is a perception issue and can be handled deftly with the proper amount of notice and procedures. Certainly, a company that is closing larger contracts more often and has the ability to pay their bills on time is going to have more pep in their step. Since we turn down our fair share of prospective clients for various reasons, being able to qualify for factoring definitely puts a company on the growth ladder.
What are some of the leadership lessons you’ve learned in your almost two decades at the helm of Creative Capital Associates?
I would offer that success is about the work. The ones who work the hardest at it are always going to be out in front blazing the trail. It’s important to remain open to questions and possibilities and to do the work.
What do your foresee for the future of factoring and commercial financing?
There is a trend towards automation. It can be tricky with factoring because of the extenuating circumstances often associated with using this form of financing, but that hasn’t stopped technology companies from trying to edge their way into the space.