California Apparel News

Poor consumer confidence and lackluster retail sales may have put a dent in business, but that doesn’t mean there isn’t a world of opportunity out there for financial institutions catering to the Southern California apparel industry.

With traditional banks getting rid of their problem accounts, nontraditional lenders such as factors and other asset-based lenders are seeing an increased need for their services. As some companies put their business plans on hold, financial executives said capital is available for asset-based loans.

The California Apparel News talked to Mitch Cohen, senior vice president of CIT Commercial Services; Fred Gaylord, senior vice president of Capital Factors; David Enzer, managing director of Century Capital; Nick Susnjar, vice president of business development at Summit Financial Resources; and Ron Bossi, regional vice president of Union Bank about the state of investment in the apparel industry.

California Apparel News: What is the current market or financing?

Cohen: The lending environment is easier today than a year ago. There are so many people chasing the few deals that are viable, apparel companies get more opportunities. That said, we seem to be getting more than our share. Our revenue as an organization on the West Coast is up around 10 percent over last year.

Enzer: The overall market for capital for apparel is excellent. We help bring equity into companies that are growing and help on the mergers-and-acquisition side. Over the last year there has been a significant number of transactions—a lot of [mergers and acquisitions]. There’s been a lot of money flowing into the junior contemporary market.

Bossi: Interest rates haven’t been lower since most people were born. It’s a wonderful time to look at your commercial real estate and possibly refinance, even if you have a prepayment penalty.

Susnjar: From a new-business standpoint, last year was pretty soft, so I’d imagine there’s a surplus of capital available and lenders who can take more risk. We’re more of a deal shop than a traditional factoring house. We have the flexibility to do different types of loan structures.

Gaylord: The criteria we use in extending credit have not changed. If there’s decent working capital, if the people in the company have good character, we will still take them on as a client.

CAN: How important is character?

Gaylord: Character is the number one issue. I’ve been around 25 years, and you can pretty well get a feel for the client prospects when you go out to meet them in the plant. And you do a little checking on how they handle themselves in the business community. We look at the commitment and experience of the owners.

CAN: What will ruin a deal from the get-go?

Gaylord: A negative net worth. Financing obsolete inventory. Those are things we wouldn’t want to get involved with. We’ll support growth all day long. What we don’t like to support is dormant inventory.

CAN: Is the war affecting financing for the apparel industry?

Enzer: Recently Juicy Couture got bought [by Liz Claiborne]. A lot of high-margin contemporary lines have a lot of interest, and their numbers are up. That part of the market is still very strong.

Bossi: People have been delaying decisions because there’s just uncertainty in the air. We talk to lots of companies this time of year because they’ve just gotten their year-end numbers. We have fewer appointments this year, and I think it’s a reflection that people are undecided about what they want to do about general business decisions.

Susnjar: The year started out fairly strong. But since the war, the perception has reverted back to that of last year. There’s a wait-and-see indecisiveness. Once the war is behind us, we can turn the corner and get this economy turned around. Gaylord: People are reluctant to go out and purchase merchandise. But some [companies] are doing very well, like jeans manufacturers. If they have a hot item or are in a niche market that’s working, then they’re doing really well. If they’re in a classic market where your buyer is more conservative, then they’re not doing all that well.

CAN: What financing trends are you noticing?

Enzer: We’re seeing a big move into licensing. Decent companies with cash flow are going after established licenses and think they can penetrate using that brand. I think there’s a lot of unexploited growth there.

Susnjar: We’re finally starting to see banks tighten up and get rid of their problem accounts and try to get an alternative source of financing for them. We thought we were going to see it last year. Our business is up about 20 to 30 percent in the first quarter over last year.

CAN: What’s the average size of a deal?

Enzer: The transactions we’re working with are typically $3 million to $50 million.

Susnjar: We look at prospects that are doing $10 million to $20 million in sales. Our credit lines are from $100,000 up to $2 million. There are a lot of players in that arena, and the competition can be fierce.

Cohen: The companies we serve range in size from $2 million in annual sales up to Fortune 1000 corporations.

CAN: For whom is factoring best? Susnjar: It’s best for someone less sophisticated systemwise, for companies that are just starting out. Factoring is a great vehicle to take their company to the next level, like a bank. An accounts-receivable line of credit is more for someone who’s just looking for cash flow and doesn’t need the credit protection and collection service.

Gaylord: It’s less expensive to outsource your accountsreceivable function to a third party who’s a professional. There are a number of very, very big companies that factor their receivables because they have a fixed cost.

CAN: Is capital available even for small start-ups?

Enzer: Where people have track records, they’re able to find seed capital and partnering deals for the outsourcing of manufacturing. We’re usually not involved in straight startups— we’ll call established players and ask if they’re interested in talking about a joint venture.

Bossi: When you’re looking at start-ups, you’re really not talking about commercial banks. You’re talking about factors or commercial finance companies. They’ve got to be borrowing $1 million before I can make something happen.

Susnjar: [The chances are] pretty good that there’s a hard-money factor that’s willing to lend to a company that’s just starting out, providing it has some good invoices. Some factors are strictly a collateral lender, so if you’ve got good invoices, they’ll purchase them. They might do it on a recourse basis and not take the credit risk. But they’ll at least be able to give the working capital that startups need.

CAN: What about distressed companies?

Enzer: We work with all sorts of distressed companies if we think something’s there. We work with lenders who will go into distressed situations, and we also work with guys who can help move inventory if companies need to bring money onto the balance sheet rapidly.

Susnjar: Banks don’t want you if you’ve had a year or two of losses. But that doesn’t necessarily mean it’s a bad account. It might be something we’re interested in, providing the collateral is good and it’s moving in the right direction.

Gaylord: We would be more reluctant to take on an account like that unless there was enough collateral to support the deal. We’re asset-based lenders. Here’s a glib quote I’ve used for years: “If you’ve got the assets, we’ve got the money.”

Cohen: We like to support companies that are in transition, and this current environment gives us many opportunities that the banks would not look at favorably. It could be lack of sales, earnings issues, liquidity issues, because we’re focused on collateral. As long as collateral performs, we can get past these other issues.