17:12 13 March in Blog
Last Friday the US Jobs report for January 2014 was published.  The economy created 175,000 new jobs in the month of January.  Economists expected this figure to be lower because of severe weather throughout the United States.  If the figure was smaller, the typical cycle of the economy losing steam in the Spring would have been predicted.  This cycle of the economy losing steam each Spring has been going on for at least five years.
Economists are now predicting that the growth they projected for 2014 is sustainable and will continue throughout the year.  Let us hope that by the end of March they do not revise the January jobs number downward.  Typically, what happens is the job numbers are often adjusted negatively or downward 45 to 60 days after they are published.  This gives the economists the opportunity to revise their forecasts.  But more importantly, at this point who cares? 
How is your economy doing?  Our clients at Capstone Capital Group, LLC seem to be doing very well.  Each month we are setting records in terms of business funding solutions and new client origination.  Regardless of what the US Jobs report says (or their revised versions), our clients will grow substantially in 2014.
We are fortunate to operate in a micro economy where the macro economy has significant influence but it doesn’t stop those entrepreneurs who are constantly seeking out opportunities to attain their goals.  We continue to advocate that you should ignore the economic forecast lest they color your view of the opportunities that are within reach.  Last week we discussed “getting into the game” by finding a small business funding source to support your company’s growth and bid opportunities in Get in the Game!.  This week, the economic data supports that view and if you are too slow at jumping in you may get left behind.
Sarah E. Needleman writes a column called the Accidental Entrepreneur for The Wall Street Journal.  Last week she published an article entitled “When Banks Won’t Back Your Startup.”  In the article, she interviewed a company who availed themselves of a Factor because no other financial institution would provide funding.  Through the use of the factor, the company was able to cover operating expenses while waiting for customers to pay.  The company grew significantly and eventually raised $250,000 in investor funding. 
To quote the owner of the company “Factoring is an amazing strategy when you can’t go to a bank and you are trying to get a product out there.” 
To sum it all up, the economy is coming back, Get in the Game!, get some new contracts, and get a Factor to fund them  If you are a construction subcontractor we are waiting for you!

Get In the Game!

19:00 06 March in Blog
Last week, we wrote a funding support letter for one of Capstone Capital Group, LLC’s clients who submitted a bid on an opportunity with the Port Authority of New York & New Jersey (“Port Authority”).  The company submitted their bid along with a letter of funding support to prove to that they had sufficient access to capital to complete the work.  The company unfortunately lost the bid to another firm who submitted a bid at 50% of the company’s bid.  As a public institution, the Port Authority has to take the lowest bid, but it is not practical for one union contractor to under bid another by such a large margin.  The client was not disappointed by losing the bid because the company bid the work at their best price and at a gross margin that would ensure the survival of his company, which is a fair way to conduct business.
The client is “in the game” because they have a construction factoring facility with Capstone.  The owner is positive about the company’s future because he knows he has the skills to provide customers with the best construction services available in the market along with funding to grow the business.  The client was also aware that this is one of many bids the company will be participating in. 
There is no point in taking low margin work that will hurt your company in the long run.  Many contractors submit low margin bids during slow periods to keep cash flowing and to keep employees on jobs.  The end results are:
·        increased accounts payable
·        liens on jobs
·        an overall loss of reputation 
This happens time and time again. 
At Capstone, we have a policy:
If the gross margin on a job is too small, the related accounts receivable will not be factored. 
Why does Capstone do this?  It is only a matter of time before the owner of the project puts their foot down and stops paying due to the use of substandard materials or workmanship.  There is no opportunity for the client to come out of the job stronger than they went into it without sufficient profit.  Accordingly, if the client cannot make money Capstone will not want to participate in a transaction that will result in a loss of capital even if we get paid in full.  It is not good business for the client or for Capstone!
We have observed that many disadvantaged business enterprises (DBE, MBE, WBE, etc) flounder following the receipt of their designation from the respective state or federal agency.  There is an expectation that work will come rolling in once the designation is granted. 
Without funding support from a working capital facility, an Invoice factoring facility or a company like Capstone, who understands their business model, disadvantaged business enterprises have limited options.  These entities are NOT in the game and are missing opportunities everyday. 
Get in the game! Find a Business funding solutions that will support your growth and bid on opportunities within your skill set.  Opportunities will be won and lost however you’ll always be able to deliver the highest level of service or product possible.  The frustration will be replaced by exhilaration due to company growth.
Take that first step and Get in the Game!

I’ll Have a Large Digital Pie, Hold the Anchovies

14:01 13 February in Blog
Last Friday there was a Wall Street Journal article entitled “Apps Are Wrecking Mom-and-Pop Pizza Shops.”  The primary reason why independent pizza shops are losing business is their failure to develop methods of communicating with online and mobile technology.  Essentially, with purchase order factoring and invoice factoring in the mix, the chain and franchise pizza retailers have developed digital communication systems that allow a buyer using a smart phone to order a customized pizza, pay for it and 30 minutes later or so it appears at their doorstep hot and ready to eat.  A Mom-and–Pop restaurant requires a phone call, the customer must travel to the pizza store, pay for the pizza and pick it up. Large chain and franchise pizza retailers such as Domino’s, Papa John’s, and Pizza Hut now attribute at least 40% of their sales to digital orders while independent Mom-and-Pop restaurants procure none.
This illustration of the economy shows a failure to adapt to technological platforms that customers now take for granted as part of their life.  Customers simply don’t understand why anyone would order pizza by phone, go to the pizza store, pay for it and pick it up.  They are correct.  Why should they pick up a phone and speak to someone when they want a simple thing like a pizza when they do almost everything else that is important to them on-line?  The Mom–and-Pop’s primary barrier is the cost of having an IT solution capable of handling online orders or a similar smart phone app.  Independent pizza shops on average have reduced sales by 20% to 30% due to this failure to adapt.  The bigger issue is that they are failing to maintain their current customer base as customers find it more convenient to order pizza over the internet.  Additionally, an age implication may be that younger customers are just as discerning as the older ones however they expect business to be conducted in a certain way for a business to expect their participation as customers. According to a 2013 State of the Pizza Industry Report, core pizza consumers aged 25 – 34 are more likely to utilize an online ordering option than not.
One would think that the cost of creating a digital market place for a Mom-and-Pop pizza purveyor would be relatively simple and could be executed through a website.  The cost to develop the website would be quickly recouped by a sustained increase in business.  This is a very common problem.  Technology lags, businesses lose their customer base and eventually a life’s work goes by the wayside.  Just think of the New York Stock Exchange; it was once a place where hundreds of people executed a wide range of spot factoring trades by screaming orders across the room.  Having a seat on the exchange was once expensive and prestigious.  If you didn’t sell your seat at the right time it lost tremendous value.  Now, computers trade faster and with more accuracy.  Floor traders are rare these days.
While independent pizza shops are losing market share to more technologically advanced competitors, your business may also be faced with similar issues.  Reference Capstone Capital Group’s blog dated January 16, 2014 regarding temporary employees and how they can help you grow your business.  On that same subject they can also help you increase your digital footprint.  Newly minted MBAs who are actively searching for employment are banding together in “cells” to accumulate their experience and expertise in a variety of business disciplines to assist small companies develop and implement their business plans at a fraction of their true cost..  These MBAs are keeping their skills sharp while at the same time you could be benefiting from these experienced well trained professionals who are available.  There are a couple of websites to post your needs on and a group of MBAs will bid on the work.  A few of the companies that provide these services are as follows:  Hourly Nerd, Inc., MBA & Co., and Skillbridge, Inc.
Now there should be no excuse if you do not grow your business.  You have your goals and business plan in place, Funding from Capstone Capital Group, LLC should you need it and access to some of the best talent available for whatever your needs are to support the growth of your business.  Take advantage of the changes in employment and technology to keep your company growing and profitable.  Create opportunities for your business instead of opportunities for your competition by staying on the cutting edge!

Deceptive Headlines: Read the Fine Print

19:30 06 February in Blog
A headline from the Money & Investing section of The Wall Street Journal on January 30, 2014 was “U.S. Banks Start to Ease Limits on Lending”.  What a casual observer would glean from such a headline is that the banks are open for new Business Loans.  The article starts out very hopeful by describing how the new bank lending standards will “underpin” economic growth.  As the data illustrates the positive trend of underwriting standard easement, the reporter waits until the very end to point out that “The trend extended to credit-card, auto and large corporate loans…”
Ironically, large corporate borrowers are the ones fortunate enough with access to the corporate bond market for long-term inexpensive debt capital.  These borrowers have no need for Bank Loans unless they are making an acquisition or have a short-term borrowing need that was not accounted for when budgets were formulated for the upcoming fiscal year. 
Most readers of this blog are small business owners.  Small business owners end up being the ones with very limited options when it comes to Bank Financing.  Typically under pressure for immediate financing, these businesses are more likely to be rejected while going through a bank’s underwriting process for a multitude of reasons related to risk, balance sheet, and other financial issues.  Undoubtedly the first and foremost priority of banks is compliance with banking regulators which is discouraging to these enterprises.  The demographic relies on second tier financing companies like Capstone Capital Group, LLC to help with Working Capital and Contract Funding requirements.
The article goes on to say that small businesses have been hesitant to borrow because of uncertainty related to the Affordable Care Act and rising taxes.  On the contrary, most companies want to grow regardless of the regulation coming out of Washington D.C.  The reason why Small Business Funding have been trending down is that more and more banks are not able to offer them.  As a consequence, Alternative Financing has been the driving force that is providing working capital to small businesses.  This financing comes in the form of Factoring, Purchase Order Funding, and Trade Finance solutions.  Clients who are able to use these funding and financing techniques are growing and thriving regardless of the economic environment.  It is one of the true bright spots in the uneven economic recovery we have all experienced from time to time over the last six years as we run our business operations and try to grow.

Look Out Below!

13:47 31 January in Blog

Is your head spinning? 

Depending on what you are reading, the economy is now declining after retail sales have been calculated for the holiday season.  Durable goods orders are down, new housing starts have slowed and car sales are expected to plummet.  Emerging markets are taking a hit because the Federal Reserve (Fed) is pulling back on quantitative easing.  Banks cannot lend any longer for leveraged buyouts.  Banks are limiting their exposure to any business that they feel will require more than normal due diligence whether they require loans or simply deposit accounts.  It looks like the world is ending in the macro economy.
All of these events could affect your business if you let them.  We have learned that opportunity is always out there in the micro economy.  You may remember from your freshman year of college the difference between microeconomics and macroeconomics.  At Capstone Capital Group, LLC, we are focused on the microeconomics of your local economy and sniffing out opportunities there.  These opportunities are created by regional differences and influences throughout the United States.
The quantity of substantial infrastructure projects currently planned in every part of the country is unprecedented.  How much of this work are you going after?  Never before has so much emphasis been placed on set aside work for disadvantaged business enterprises (DBE) including minority owned (MBE), women owned (WBE) and veteran owned (VOB)businesses.  How much of this work can your company bid on?  Don’t get caught up in all of the political double speak that takes up so much of the news.  Focus in on your micro market, your sphere of influence and Grow Your Business.
For the last five years each Business Cycle began with much promise early on in the year and by the end of April the promise had evaporated.  Yet the stock market and housing market continued to grow due to the Fed’s Quantitative Easing.  Now that the Fed is reducing its bond-buying program, everyone fears the economy will retract. 
For those in the Construction Industry, once the funds are committed to an infrastructure project, the project will continue until it is finished regardless of economic conditions.  The same does not apply to the private sector.  It’s time to sharpen your pencils and let the noise play in the back ground while you bid on the work that is out there.  Be aggressive and grow your business.  Capstone Capital Group, LLC is here to help you with Contract Funding to support the bids you will win this year while you defy the economists who are predicting “doom and gloom” for the macro economy.

It’s the Economy, Stupid?

19:47 23 January in Blog

Everyday, depending on what consumers or employers are doing, the economy is either growing or contracting.  There are a few Economic Indicators or news announcements that you might be interested in following to come to your own conclusions: 
  1. The decision by the Federal Reserve (“Fed”) to either increase or decrease the Quantitative Easing (“QE”).
  2. Whether or not Congress or the President plans on not enforcing certain aspects of Dodd Frank,
  3. How your local Business Climate is reacting to the changing economic conditions in your region or area of operations.
The decision by the Fed to ease further or decrease their QE program is important because the program has had unintended consequences.  The original strategy behind QE was to increase the money supply to stimulate the economy.  Put simply, if banks had more money they would lend it to you, the small business owner. In turn these business funding solutions you to hire new employees and increase sales through which the economy would grow.  grow.  The reason why small business funding may have worked in the past (i.e. the early 1990’s) is because banks did not receive interest on funds deposited at the Fed.  Under the QE banks will receive interest on their deposits.  This has translated to no lending to the Small Business Community because lending to the Federal Governmentcomes without the chance of a default.  Small Businesses who take risks often default and are not as good credit risks as the Federal Government.
The “To Big to Fail Banks” are now lending to their guarantor and not to you.  These banks have been able to recover from the financial crisis without taking any risks.  During the same period of time in the early 1990’s the Prime Rate was 8% (per annum) and the Fed Funds Rate was approximately 3%.  Parking money at the Fed yielded negative 3% and lending to a good credit yielded 5%.  The banks made loans and the economy recovered all they way until 2001.  As a result of the stimulus the private sectorrecovery led to robust economic growth with limited (if any) budget deficits by the time President Bill Clinton left office.
Because the banks are lending to the Federal Government there is no inflation risk since all the excess liquidityis in the bank being borrowed by the Fed.  That’s good for a business owner and homeowner but not good for people planning to retire because more likely than not, they’ll have to go back to work to increase their nest egg or just cover living expenses.  This is why temp agencies have so many qualified candidates to hire to support the growth of your business.
When reviewing Dodd Frank headlines what you should focus on is the reserve requirements of the banks.  If it appears that the law will be amended to reduce the reserve requirements for small business loans then you could consider going back to the bank for financing.  However, you will still need audited financial statements and three years of profitable operations, personal guarantees and the rest.  You have to weigh the cost to you personally versus going to a finance company or Factor where the cost of capital may seem more expensive but the cost to you personally as the business owner is far less and there is less risk to your personal assets than at the bank.
Finally, how is the local economy doing?  Connecticut is considering developing a Port Authority,  Florida is creating a for-profit railway system, New York is building at least three new bridges,  the City of New York is in fear of being washed into New York Harbor and has initiated a $20 billion flood control plan.  I am sure if you read your local paper everyday you will find that there are significant opportunities available to you or your business.  Take a minute to cut out the article and call the reporter to ask them questions.  Who doesn’t like to talk about their work?  Contact whoever is in charge of the project; find out how you can help. 
The worst case scenario is that you prepare a presentation and you don’t get to participate in the original project it was intended for however the presentation can be utilized for a variety of other opportunities so another opportunity can be gained from poking around.  This could actually lead to multiple jobs.  Although the opportunities identified above all seem like construction projects, they need Supplies, Office Supplies, office space, etc. and they last several years.  You might not be able to change the direction of the economy, but you are able to change the direction of your company.  Set yourself up for success by working towards completing your business goals and use spot factoring to make progress by any means necessary.

Executing Your Goals and the Importance of Human Capital

20:00 16 January in Blog

It is mid January which means you have settled in on your Goals for 2014 and are reviewing them twice daily.  By now, you should be getting great ideas when you least expect them.  From experience, when engaged in non-work-related activities, the best ideas come to one’s mind.  It is important to write these ideas down and develop them so when you get to the office you can place them on your to-do list. You will then be able to focus on how to implement the ideas or discuss them with your staff or peers to determine their viability.  Unfortunately, not every great idea you will come up with will be relevant or successful idea to implement in attaining your goals.  Nevertheless, keep track of these perils of thought and use the ones that are in line with the attainment of your goals.
You should have also identified your Business Funding Sources whether they are a combination of Debt and Equity, equity or debt.  This foundation is essential so you can increase work schedules or contracts as the start dates begin without worry on how you will finance them or the Growth of Your Business.
What we haven’t discussed yet is how you Multiply Yourself to ensure that your execution tactic does not fail during this period of expansion.  You will need a few key employees that have experience in your industry.  Where do you find affordable talent in your industry with significant experience that can help multiply your time?  There are scores of underemployed veterans and baby boomers.  Because of the uneven economy many people are still looking for work.  The first place to look is a Temp Agency that handles this type of job candidate. 
Hiring a temp may seem a bit more expensive at first but what they allow you to do is try out the employee for a period of time.  If you like their performance and fit in the culture of your organization you can hire the individual full-time for a small fee to the temp agency.  You should have earned enough to cover the employee’s placement fee by the time you have to pay the fee for hiring them.  The temp agency will also allow you to layoff the employee if the job comes to an end and you do not have work for the individual.  This is a great way to incrementally add to your staff without creating long-term excessive overhead.  If you select the correct temp agencies you will have a very well qualified group of candidates to select from.
It is important to surround yourself with the people you need to run your organization successfully.  While Human Capital isn’t something you can show on your balance sheet, it is an extremely important asset to the long-term sustainability of your company.

Happy Days Are Here Again?

20:00 08 January in Blog
By now you should have committed your goals and business objectives to paper and are reviewing them twice daily.  See the blog post dated December 20, 2013 for details.
The next step for your business is to compute how much working capital you will need to meet your business goals.  Pro forma projections are typically done incorrectly.  They always show a profit which is not the point of the pro forma in the first place.  Many business owners believe that if they fail to show a profit, their pro forma projection will not be considered by a bank, finance company or factor.
The purpose of the pro forma is to determine what your cash flow needs are going to be and how you, as the business owner, are going to satisfy your cash flow needs.  There are only two solutions to this problem and neither is the final answer: debt or equity.  How will you make up your cash flow shortage for your business?
If you are fortunate enough to be in a business where the rates of return on capital are significant or exponential then you have a good chance of raising equity to cover your working capital needs.  Even with the Jobs Act you will need a significant amount of time and legal advice before you can present your equity opportunity to investors.  The question becomes where do you find equity investors?  Institutional investors want to invest in large companies or technology companies that are major disruptions.  For the rest of us, that leaves friends and family.  Again you must prepare properly and ensure that your friends and family understand the risks involved with the investment and can afford to lose their money.  Can you stand the thought of losing money invested by your friends and family? If so, then proceed with your friends and family. If not, then continue reading.
Most business owners typically lean towards debt because they have already invested personal equity in their companies.  Debt can take many forms depending on the type of business you are in.
Getting back to the point; once you develop your pro forma cash flow projections you fill in the cash shortfall with either debt, equity or a combination of both.  Once you make this decision, you are on your way to not only execute your business objectives but to also put the appropriate capital behind the initiatives to succeed.  Your pro forma projections may still indicate that you are making a profit but at least you will know what the source of your working capital will be.
On December 30, 2013 the Wall Street Journal had the following headline in its Small Business section “Small Businesses Anticipate Breakout Year Ahead” and on January 3, 2014 in the Markets section an article titled, “Biggest Lenders Keep On Growing”.  When you have time to read these articles, you will learn that small businesses have been optimistic for the last several years and by the end of the first quarter to the middle of the second quarter of 2013 the U.S. economy lost its steam.  Furthermore the larger banks are forcing the small Community Banks to consolidate to remain competitive.  These two forces cancel each other out.  Small businesses cannot grow without working capital and large banks are not funding to small businesses.  A friend of ours is a commercial banker at a community bank in New Jersey and for the last 90 days he and his staff have been training.  Do you think they were training on how to make more loans to small businesses?  If you said yes you would be incorrect.  They have been training on how to operate their bank without running a foul of Dodd Frank. 
This was startling news and demonstrates that regulation can strangle the nascent recovery everyone is expecting for 2014.  Don’t let your business plan get derailed because you cannot borrow money from a large bank or a Community Bank.  Find a secondary financial institution that can either provide an asset backed loan or an invoice factoring facility so you can grow your business and be part of the recovery.  The only other choice is to become a statistic.  January will be over before you know it.  Make it a goal to have a funding facility of some type in place by the end of the month so that you can be part of the 2014 recovery that everyone is talking about.

Are You Better Off Today Than You Were A Year Ago?

20:00 20 December in Blog
Now is the time, as business slows down for the holidays, to evaluate what you have and have not accomplished in 2013 and why.  In most cases if you failed to set goals or write them down you probably are not where you thought you would be right now.
I have been a goal setter since I was in college and the military but setting a goal is not enough.  Writing them down and focusing on them every day is the only way to achieve them.  There is an old saying: “if you are not pursuing your goals you are probably pursuing someone else’s.”
From experience, I set three categories of goals: business, personal and social.  For my business goals I write specific things I want to accomplish for the companies I am responsible for.  For my personal goals, I list things I want to accomplish that will make me a better person or more accomplished.  Personal goals may include learning a second language, learning how to play an instrument, gaining a professional license of some kind, etc.  For social goals, I focus on how I can help people either by donating time, money or both to causes I feel strongly about.
I write down goals in each category and place them in two picture frames on the vanity in my bathroom.  Positioning my goals in my bathroom forces me to see them at least twice a day; when I wake up in the morning and before I go to bed at night.  When I leave for the office my goals are clear and in my head and when I go to bed they are on my mind. 
It is very easy to get distracted from pursuing your goals unless you write them down.  How many times have you looked at your smart phone on your way to work to realize that your day is not going as planned?  If you are in management your job is to solve problems.  Problems are the biggest distracters of achieving your goals.  They force you off track in some cases and delay your plans.  However, I have found that sometimes problems create opportunities and often the opportunity is masked by the problem.  If your goals are on your mind then you will have an easier time at recognizing opportunity when facing problems.  In most cases you can position yourself to move closer to your goal as you solve the problem.
I am sure you have heard the expression “How do you eat an elephant?” with the answer “one bite at a time.”  Most people who set goals get disappointed when they do not achieve their goals in a short time frame and abandon their quest immediately thereafter.  The most common form of this is the New Year’s resolution.  By the end of January many people have stopped pursuing their goals.
Often times you stop pursuing your goals because the goal you have set may be too large for the timeframe you have given yourself to achieve it in.  It is not a bad thing to fall short of a chosen goal.  I assure you that when you fall short you have accomplished something toward the goal.  The point is without the goal you would not even accomplish as much as you had in missing the goal.  I have set the same goal year after year and eventually I was able to achieve it however each year I developed the skill or knowledge to be able to accomplish the goal.
Make 2014 the best year of your life by writing down your goals and reviewing them every day.  You will be amazed at the results you achieve regardless of where you work or what the economy is like.
This will be our last posting for 2013.  Have a Merry Christmas and a Happy New Year!

Why “Big Banks” Are Turning Down Working Capital Lines of Credit at a Record Pace (Part 3 – Dodd Frank Does It Again)

20:20 11 December in Blog
Community Banks are closing their doors because of the cost of compliance.  Small Business pays with less access to credit.  Unintended consequence of one size fits all regulation schemes.
WSJ Headline “Tally of US Banks Sinks to Record Low” on December 3, 2013.  There were many banks that failed as a result of the financial crisis, but-the real impact of the reduction of banks in the US is on small businesses that rely on credit from Community Banks.  This means less credit for small businesses who rely on the Community Banking network for working capital and lines of credit
Community Banks are bearing the brunt of Dodd Frank because of the costs of compliance with the new regulations and are closing as a result.  The new regulations are being enforced through out the banking system even though throughout the financial crisis Community Banks were not the cause of the crisis or nor even a significant portion of the crisis could be attributed to Community Banks.
Community Banks are smaller banks with several hundred million dollars in assets that are typically formed by successful local businessmen and women.  Their typical business plan is to stimulate the local economy by lending to other small businesses that large banks tend to avoid.  These smaller businesses require more support than a typical money center or regional bank is able to provide.  However, their presence in small markets and even in major metropolitan areas such as New York City is vital to the strength of small business and their ability to grow.  They provide accounts receivable lines of credit, equipment loans, real estate loans and in some cases even accounts receivable factoring.
Community bankers work on the principal of the Three C’s: Credit, Collateral and Character.  Large banks work off of computer models that determine whether or not you will be granted a credit line.  In most cases cyclical business, which many small businesses are characterized as, do not stand a chance against the money center or regional bank’s computer models as they are regularly rejected.  The beauty of a Community Bank pre Dodd Frank was that the small business owner could sit down with their local community banker to review the collateral, demonstrate they have good credit and character and establish a credit facility to help grow their business.  In the alternative, if there was not a chance that the bank could lend to a small business they would let them know immediately.  There is a benefit to a fast “No”.
We see this time and time again in our business at Capstone Capital Group, LLC.  Clients tell us they our factoring services as a backup to the line of credit they are applying for.  We can see immediately that there is no chance they will be approved by the money center or regional bank’s computer model.  However they go to the bank and apply through a business officer who is not trained to prequalify the applicant.  Several weeks are wasted in preparing and presenting all sorts of information that is required as part of the application process.  Once the loan request is denied, the business owner cannot make up for the lost time consumed by the lengthy application process that resulted in a denial of credit. 
Most non-bank financial institutions that support small business act like the pre Dodd-Frank community banker in many ways.  The Three C’s are employed because they take the time to understand the customer’s business and attempt to craft a program that will help the customer grow. 
Speaking from experience, we were in need of a $10,000,000 letter of credit facility to support our trade finance business.  We went to one of the large banks that you see on every corner in New York City where Capstone Capital Group, LLC has its operating accounts.  We advised the bank that we did not want to borrow from them, but instead we wanted to give them money so our letters of credit were cash collateralized.  You would think this is a pretty safe credit facility; after all we are giving them cash as collateral.  Although we were using our own cash to collateralize the “credit facility” we still had to provide a significant amount of both business and personal information.  This was understood since they are regulated by the federal government. 
What we were not prepared for was the approval process.  The bank actually wanted us to put up $20,000,000 for a $10,000,000 credit facility.  The process would work in the following manner:
  • A $10,000,000 deposit would be used to establish the letter of credit facility 
  • When letters of credit documents were presented we were not able to use the $10,000,000 that had already posted as collateral to pay for the goods purchased under the letter of credit. 
  • New funds would constantly be needed to provided the bank to cover the drawings under the various letters of credit issued so the $10,000,000 in collateral would always be on deposit. 
We inquired as to the logic of this approach and we were advised that their system is completely automated and in fact there was no human intervention whatsoever. To ensure that they did not extend us credit without cash collateral we were required to have twice the value of the letter of credit facility available to the bank.  Needless to say we took our business elsewhere where the credit terms made more sense. 

The federal government wants small business to thrive and grow and hire new employees to reduce the unemployment rate.  However, the federal government’s policies have unintended consequences that actually stymie progress for small businesses.  Could you imagine the growth rates of small business in the U.S. if the regulations that restrict their growth and ability to borrow were relaxed?  There would be one hell of an economic recovery underway!!Visit our website or connect with us on LinkedIn or respond below should you wish to discuss this further.

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