TSL: Have you diversified your product line during the past year? Or plan to in 2023?

Dickens: Our product line has stayed consistent in the past year, and we expect it to remain the same in 2023. We expect our growth to be organic and from the industries which we already serve. We are however targeting expansion into new geographies both inside and outside of the USA and we are opening up Sallyport UK in Q1 2023. With regional variations we would expect to see some potential offshoots in terms of new products which may be specific to each environment. We know where our strengths lie as a business and we focus on those, if a client is seeking a product or service we cannot offer, we will utilize one of our many funding partners to put together a complete package.

Efron: We continue to offer a full range of factoring products to serve the marketplace. From traditional AR-only non-recourse factoring all the way to credit facilities that include also lending on other assets such as inventory, M&E, intellectual property and real estate. We also offer recourse factoring, which has been very positively received in the marketplace for the last few years.

Franz: Culain Capital Funding is in our first year of business. We are a privately held, specialty finance company focused on providing accounts receivable financing facilities from $250,000 to $5 million in credit commitments nationwide. With our originations, we have more than ever tried to stick with our knitting, meaning traditional factoring, and not underwrite receivables relating to progress billings or medical billings. We are focused on the quality of the accounts receivable, the account debtors and the companies that we feel can make it through an economic downturn. The one industry that we have considered frequently, and that we have staffed up accordingly with the proper expertise, is the funding of government contractors. We feel that if we properly mitigate our risks, these prospects will provide us with growth opportunities and differentiation from the competition. We are routinely approached by companies with complex financing needs, and we recognize that we will need to complement our factoring solution with the addition of asset-based lending facilities.

Merritt-Parikh: Yes, we continued to build out our junior revolving lines of credit for factors and lenders into our product base of participation funding and senior lines of credit. In the third quarter of 2022, we also launched a new division, Lead Line, focused on deal sourcing for our lending partners. For 2023, our plan is to continue to expand that division and possibly add another ‘value add’ division that will further help the lenders we work with grow their platforms even more.

Yang: Rosenthal & Rosenthal has been diversifying product lines for several years now. Most recently, we launched Pipeline, our newest division focused on providing growth capital solutions exclusively for high-growth direct-to-consumer and e-commerce brands.

Diversification is also taking place within our established divisions, as we continue to adapt our offerings to address our clients’ changing needs. For example, Rosenthal created a dedicated export factoring team this year to enhance the capital solutions we have in place for our clients and prospective clients.

TSL: What surprised you in 2022 in the factoring industry?

Dickens: The long-expected recession and flurry of bank exits did not materialize as we expected probably in late 2021. 2022 was more of a return to normal for the industry, and, certainly for Sallyport, we saw some solid organic growth in the portfolio which continued the trend from 2021. We expect that 2023 will see more of a correction in the markets and we expect 2023 to be a strong year for the factoring industry.

Franz: While we knew interest rates would rise, we felt that the economy would cool down quicker. We need to be more vigilant in pricing our deals.

Efron: The two main things that surprised me this year were how significantly many large retailers missed in the indications they gave to their suppliers (our clients) at the beginning of the year in terms of how much product they would be ordering in certain categories. Retailers apparently didn’t have the ability to realize that most of the product categories that did extremely well in 2020 and 2021 during the pandemic would not continue to grow the way they did during those two years, namely products such as home textiles, furniture, kitchen appliances, etc., which were all the products we were purchasing in 2020 and 2021 while spending most of our time at home. The retailers’ miss created all sorts of issues for suppliers and their lenders (factors included) as inventory positions increased significantly and created challenges at the cash-flow level and the warehousing level.

The second issue that surprised me this year was how much the Fed raised rates. Prime was 3.25% at the beginning of the year and is ending 2022 at 7.50%. I truly never imagined we would see such a sharp increase in just one year. This will create challenges for companies, both large and small, to be able to absorb their financing costs. We will see the effect of this throughout 2023.

Merritt-Parikh: There have been so many changes in the past year that factors have had to contend with, such as gearing up after the pandemic with clients and employees, garnering capital and resources waiting for a credit wave that was once again delayed in expectations, seeing ever-increasing rate hikes and higher cost of funds while competition remained high, experiencing more instances of fraud, identifying process and control breakdowns after hiring more people that were trained remotely or new to the space, losing equity or seeing other capital/bank tightening, and more. I don’t feel like any of it’s a surprise individually, but it’s definitely a lot for factors to deal with all at once in a very short timeframe – the amount of continued change. Yang: As much as it has been in the works for a few years now, I am still surprised that the regulators managed to push the CA disclosure law to take effect this year considering all that has been crowding our world and the ongoing bigger challenges businesses are facing.

It’s also interesting that the regulators could not understand that a non-borrowing factoring arrangement is simply not a lending product and are forcing factors to disclose an APR that’s just not applicable.

(Editor’s Note, please refer to The SFNet Guide to the California Commercial Finance Disclosure Laws and Regulations available on our website www.sfnet.com/home/industry-data-publications/advocacy/california-compliance-guide.)

Another standout is the longer, extended time it takes to perform due diligence. Between hybrid and remote field exams, we’ve hit some record-long exams this year and there are no indications that this dynamic will change much in the near term.

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