Posted on December 6, 2021 by Brett
McKinsey & Company analysts recently recommended that companies review assets and liabilities on their balance sheets for opportunities to free up cash. It is sound advice in any economy but especially so in an inflationary environment where businesses are experiencing continued impacts from the pandemic.
The analysts discussed six strategies for unlocking cash from balance sheets:
Commercial debt sales unlock cash
You can learn more about their recommendations in McKinsey’s article or coverage of it in CFO Dive, but I’ll focus here on a specific strategy that ticks several of the analysts’ boxes: commercial debt sales of non-performing loans and leases.
A growing number of banks, online small business lenders, equipment leasing and finance companies, and merchant cash advance businesses are selling off all or some of their non-performing commercial accounts. This is an established practice in the finance industry. The main benefit is earning immediate cash at closing, but debt sales offer other advantages. Lenders and lessors can count on a definite return now instead of risking lower returns later. They also can focus resources on accounts that are earlier in the past-due cycle and more likely to be recovered.
To give you an idea of the types of commercial debt being sold, here’s what our company typically purchases from lenders and lessors. We buy pools of non-performing commercial accounts that are up to four years old from the date of last payment, including a variety of loans, equipment leases, and lines of credit. These accounts can have personal guarantees or no personal guarantees, be secured or unsecured, pre-agency or post-agency, or pre-litigation and/or reduced to judgment.
The prime time to sell is at the charge-off (aka write-off) stage for most finance companies. This timing ensures that the account has been thoroughly worked internally. Some lenders and lessors sell off all their non-performing accounts at charge-off, while others sell off pools of assets based on vintage, geography, quality, and/or pool size.
What cash return can you expect? We can provide you with a free, confidential, no-obligation valuation. In general, look for competitive and flexible pricing based on historic data and the buyer’s goal of establishing an ongoing relationship.
If you are new to commercial debt sales, or have questions along the way, I am happy to talk with you regardless of whether you decide to sell to TBF Financial. And check out our Get Started resource for more information and our free valuation offer.
|
Brett Boehm is CEO for TBF Financial. He can be reached at bboehm@tbfgroup.com, phone 847-267-0660 or via LinkedIn. |