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Published in Business Alabama November 2003
CEO Q&A

Alternative Financing for Emerging Enterprise
Interview by Linda Long

Marc Porter had no way of knowing that a magazine article he stumbled across while on a flight back home from Dallas was going to change his life, as well as the lives of many struggling business owners throughout the country.

Read almost by happen chance, the article described a type of non-traditional business financing that was just about unheard of at the time. "Nobody in Alabama or Mississippi was doing this," said Porter. "Only two or three companies offered it in Atlanta, and only a few hundred in the rest of the country." This kind of lending was based on a company's accounts receivable, its real estate or even its business machinery.

That was 12 years ago. Today, Porter is founder and president of Porter Capital, a corporate lender based in Birmingham with offices in Connecticut, New York and Philadelphia. During its short history, Porter Capital has provided financial support to a diverse group of businesses: a New York specialty food company; a small Birmingham publishing company; some opticians in Tampa; a manufacturer of architectural stone; a gumbo company in Mobile; and a funeral home in rural Alabama, among others.

Porter Capital prides itself on solving problems fast, having been known to turn around multi-million dollar loans within a 24-hour period. Innovative programs enable the company to raise capital for existing companies that need quick access to cash; troubled companies that scare away banks; or new companies in a growth period that don't yet have the assets, infrastructure and history in place to apply for a loan from traditional lending sources.

The Porter Capital group has 31 associates and has expanded through two new divisions that include Porter Bridge Loan Company and CapitalPartners Leasing. Annual revenue for 2003 is expected to reach over $100 million.

WHY DO YOU AGREE TO GIVE LOANS TO BUSINESS OWNERS WHO HAVE ALREADY BEEN TURNED DOWN BY OTHER LENDING INSTITUTIONS?
Porter Capital evaluates the assets of its clients to make an asset-based loan to the client. Often banks don't have the time or inclination to do this. For clients who have little net worth or are losing money, we evaluate the collateral on a weekly or monthly basis to make sure that our investors are protected from loss and to be certain of the client's continuing financial status. It is this initial and continued close monitoring that allows Porter Capital to loan where most banks cannot.

CAN PORTER CAPITAL HELP WHEN INDIVIDUALS FIND THEMSELVES AT A FINANCIAL DEAD-END WITH MORE TRADITIONAL LENDING INSTITUTIONS?
Porter Capital will often evaluate a client's business and personal situation as a piece, using financial creativity to fashion a loan where a bank may not be able to. Many of our creative financing techniques are "off-balance sheet," and include factoring, purchase-order financing, sale-leasebacks and machinery-and-equipment leasing, plus a variety of these to enable a client to reach his goals.

IS RAISING CAPITAL ALWAYS THE ANSWER? DESCRIBE SOME SITUATIONS WHEN A BUSINESS SHOULD LOOK AT FINDING MORE CAPITAL.
A growing business almost always needs more capital. With the pressures in today's marketplace that keeps gross margins slim, virtually no business can generate enough extra cash to fund high growth. Every time a business doubles in size, it doubles its need for working capital; paradoxically (but prudently) banks shy away from such compa¬nies, as they know high growth often means instability. Banks are in a low-margin business, and by law they must lend only to stable businesses; they cannot afford losses because of the highly regulated nature of their franchise from the federal and state governments. Oddly enough, banks don't lend as they do to credit-card customers. They will charge a group of consumers 19 percent and absorb losses of 5-7 percent; they are now allowed by federal regulations to do that in the commercial-loan part of their business.

COMPARE WHAT YOUR COMPANY LOOKS FOR IN DECIDING TO MAKE A LOAN VERSUS WHAT A BANK LOOKS FOR.
Banks look for strong net worth, strong and continuous profitability, a long time in business and a strong franchise in the marketplace. Porter Capital has geared its business toward start-ups, high-growth situations, turnarounds, restructurings, and even firms going into or coming out of Chapter 11. Like banks, however, Porter Capital takes a close look at the management of its clients. It's impossible for any lender to lend to careless, irresponsible and lazy management and remain in business. After all, the first rule of every lender is to be repaid. If that's not the first rule, they are quickly out of business.

WHAT ASSETS ARE ACCEPTABLE SOURCES OF COLLATERAL IN LOOKING AT ASSET-BASED LENDING?
Acceptable corporate assets are accounts receivable, machinery and equipment, and real estate. Normally unacceptable are inventory, work-in-progress, raw materials, contracts, royalties and intellectual rights.

IF A BUSINESS OWNER IS DENIED FINANCING FROM TRADITIONAL OUTLETS, WHAT FINANCING OPTIONS ARE AVAILABLE?
There are many options, and a number are listed in Porter Capital's educational web site, portercap.net. A business owner might sell his account receivables for a cash advance. He might do a sale-leaseback of either his machinery and equipment or his real estate. If he's a manufacturer, we have programs of purchase-order financing so he can fill his big order from Wal-Mart. If he needs to purchase a few containers of product from China, we can arrange to have letters of credit opened overseas. If he needs to purchase machinery and equipment, we might recommend an asset-based lease, a technique Porter Capital invented. The business owner may own other assets not in his company, and these may often be used to support his application for a loan.

ON AVERAGE, HOW QUICKLY CAN YOU GET THE NEEDED FUNDS INTO A BUSINESS OWNER'S ACCOUNT AFTER YOU HAVE BEEN APPROACHED FOR HELP?
We've done it in 72 hours, but normally from the time we first say, "Hello" to wiring funds takes two weeks. A business owner can speed up this process if he will intelligently pull together the paperwork a lender needs first—financial statements and tax returns for the past two years, accurate lists of collateral, certificates of incorporation, etc. Business owners who are well organized obtain financing with lightening speed, in many cases overnight. Those who are sloppy are their own worst enemy, and paradoxically are the business owners usually in the biggest hurry!

IF YOU HAD ONLY ONE BIT OF ADVICE FOR THE BUSINESS OWNER IN TODAY'S TIGHT MARKET FOR CAPITAL, WHAT WOULD THAT BE?
Plan ahead! Be prepared! Look at all your options. If you're growing, forecast your working-capital needs months ahead and talk to lenders early. Don't run out of cash. If you're doing poorly, the same advice holds true. And in every case, tell your lender the truth—even when it hurts. Lenders, who scrutinize thousands of businesses, have an uncanny ability to see through a business owner's efforts to conceal problems. Lenders know all too well that business owners have problems. It comes with the territory. And until they discover what the problems are with this business, they will not lend.

PORTER CAPITAL OPERATES IN BIRMINGHAM, ONE OFTHE LARGEST BANKING COMMUNITIES IN THE COUNTRY, HOW HAVE YOU BEEN ABLE TO SUCCEED AMONG SUCH HIGH LEVEL COMPETITION?
We see local banks as our partners, not our rivals. They supply us with funds, which we loan out, and they supply us with business owners who do not yet qualify for a bank loan. We will loan the bank's clients money at our risk and hope to make a profit, and once the business owner re-qualifies himself, we turn him back over to the bank that referred him to us.