SFG's Cash Flow Industry Blog

Selling a structured settlement provides liquidity. Cashing in on a long-term insurance payment can be expensive and therefore is not for everyone. However, when one is faced with an urgent financial need, obtaining immediate access to one's long-term payments can be the only alternative. As buyers of structured settlements we make it possible for an individual to remedy or even prevent a difficult financial situation.

Below are a few particulars on the advantages of cash factoring structured settlements:

• There are approximately 530,000 structured settlement recipients throughout the U.S. currently receiving payments.

• Federal law HR 2884, which took effect on July 1, 2002, granted structured settlement payees the right to sell their annuity payments, without tax consequences, via a court review process.

• Over 37 states have laws that provide for the transfer of structured settlement payments.

With the passing of federal law HR 2884, annuity recipients now have the legal right to cash in on their annuity payments. The process is protected by a court order, which protects all parties involved — the annuitant, the insurance company, and the factoring source.

This federal law, coupled with individual state statutes, requires that every transfer meet certain conditions. Among the conditions is that the transfer be in the best interest of the seller while considering the support and welfare of their dependents.

The judge will have complete disclosure to all of the information regarding the transfer of payments. From this, the judge will determine if the seller’s immediate need for funds is greater than the value of the payments being sold — again confirming best interest. Once determined that the seller is an adult of sound mind and has a legitimate need for the money, the judge has little reason to deny the transaction or court order as it is referred.

These states have enacted transfer statutes requiring a court order before a structured settlement recipient can sell his annuity payments. (Every transfer of payment rights will require a court order to avoid a penalty under HR 2884 .)

Alabama, Mississippi, Alaska, Missouri, Arizona, Nebraska, California, Nevada, Connecticut, New Jersey, Delaware, New York, Florida, North Carolina, Georgia, Ohio, Idaho, Oklahoma, Illinois, Pennsylvania, Indiana, Rhode Island, Iowa, South Carolina, Kentucky, South Dakota, Louisiana, Tennessee, Maine, Texas, Maryland, Utah, Massachusetts, Virginia, Michigan, Washington, Minnesota, West Virginia

Individuals living in states that do not currently have a transfer statute are often permitted to file their petitions in the state where their insurance company is headquartered.

On occasion, a few insurance companies object to the transfer of payments, but most do not. Reputable lending sources typically have solid working relationships and agreements with most insurers and can work around this situation.

Some business people look over contracts carefully. They study words, punctuation marks, sentences and paragraphs. They devote major brainpower to the project.

Then they send the whole thing off to lawyers, who repeat the process. This combination of care and caution takes place in only about one in 25,000 deals.

Managers tend to turn off their brains when facing preprinted forms. Most agreements are on forms, so little thinking happens and big problems occur. Nowhere is this more true than in equipment leasing.

Remember, however, it's up front when the other guy wants your business that you can deal. So here, for ordinary managers, are a few things to know and understand about equipment leasing.

First, check with leasing companies of different kinds -- banks, brokers, leasing specialists, captives of manufacturers and independents. Negotiate with several. Then pick the one with which you want to work.

Don't pick a lessor first. Make them compete. Once a vendor has your account, there's not much motive to negotiate.

Knowing What You’re Doing
Second, expand your knowledge. Know your lessor. Will upgrades and additional needs be provided? Will the lessor help with regulatory changes? What about flexibility at the end of the lease?

Know your equipment. Will it become obsolete during the lease term? Will you need more of it? Less?

Most equipment leases start with acceptance or commencement. On that date, you inspect the stuff and pronounce it fit for service. Then it's yours, even though the equipment is in a lessor's warehouse or in a boxcar. Your lease shouldn't begin until you're using the equipment successfully.

Success is important. All equipment leases include a non-negotiable "hell-or-high-water" clause that makes you pay regardless of whether equipment works. Unless you love paying for equipment that just sits there, be certain it operates when you accept it.

If things are complicated put an engineer or other expert on it. Remember, once you accept, you pay every month, period.

Floating
Most lessors buy equipment from manufacturers or wholesalers before they deliver it to you. Then they take your money and, perhaps a month or two later, pay on account to the manufacturer or wholesaler.

For 30 or 60 days, your lessor is free to earn interest on your cash. You can try to negotiate this if you pay attention.

Equipment leases can be short- or long-term. They cover goods ranging from heavy construction equipment to telephone systems and copying machines. Some questions, however, relate to leases of many different kinds of equipment.

Lessees need to know, for example, whether they can move equipment to a new location without written consent for which they may have to pay. Computers and other technology products need upgrades every other week. You need strong lease language if you want the lessor to pay for upgrades, adding costs to lease payments.

Much the same holds true for alterations and modifications, which leasing companies usually accept when they're easy to remove. Additions and alterations, however, may be taxable income to the lessor. More problems.

Out From Under
Early termination probably is the most common equipment-leasing problem because you can't sell goods under a lease. You're a lessee, not an owner.

Often, the termination price is the total of all payments remaining. Other approaches involve preserving the lessor's originally-anticipated yield. If you haven't done so already, this is a good time to call your accountant to help you make the best possible deal and, hopefully, to understand it.

Provisions for early termination, early buyout, subleasing and assignment protect lessees. They are not, however, going to be in that printed-form contract, and they're not going to be in the deal at all unless you put them there.

Other provisions protect you when the lease ends. De-installation date is a key provision. Do you dismantle equipment, crate it and ship in on your time or the lessor's?

Don't take anything for granted. Most form leases require shipment to anywhere in the United States. Maybe you can cap that, or limit it to a specific distance such as 100 miles. If you want to keep items, can you do so and still send back part of the equipment?

Most leases state a "fair market value" at which you'll return goods to the lessor. You need to understand how that's calculated and what charges it includes. Again, this may be a good time to talk with your accountant.

You can't negotiate any of these points after you've signed the deal. Nor can you negotiate if you allow a printed form to turn off your mind. Always think, and be careful and cautious.

For more information, check Marks and Johnson's "Look Before You Lease," 9:2 Business Law Today 26 (Nov.-Dec. 1999).

Martin Paskind is an Albuquerque lawyer. His practice emphasizes legal services to small businesses. Questions or comments can be mailed to him in care of the Albuquerque Journal, P.O. Drawer J, Albuquerque, N.M. 87103. This column is not intended to provide legal advice to any specific person, or with respect to any particular problems or situations.

For advice on specific problems and circumstances, contact your attorney.

Do you operate a profitable business that would benefit from increased cash flow? Is too much of your working capital absorbed by 30-, 60- and 90-day terms to your customers? Would your business enjoy a "credit line" based on account receivables, requiring no other collateral, that you can draw on as needed and pay only for the funds you use? Would access to such a "credit line" enable you to better manage your business and finance its continued growth? If you answered yes to any of these questions, then your company should consider factoring, or accounts-receivable funding, as an alternative method of financing.

Essentially, factoring means "selling" your invoices (accounts receivable) to a factor-a financial company that immediately pays you some percentage (typically 60 to 80 percent) of the cash value of the invoice. The factor then becomes the receiver of the payment due. When your customer pays the amount due, the factor will pay you the remaining amount, less the agreed-upon fee-typically 3 to 5 percent of the value of the invoice.

Access to working capital today, perhaps more than ever, banks are reluctant to finance contractors and subcontractors. As a result, the need for alternative financing is greater than ever. Finding sources to finance projects is difficult, but without financially stable contractors and subcontractors, a project would wind up dead in its tracks, causing delays and greater costs. Factoring is becoming the alternative-financing method of choice because it helps to shore up the financial stability of those who actually build the projects. In fact, banks are referring contractors and subcontractors to qualified factors in an effort to help those who have been, and may still be, their customers. Why? Because factoring can help the bank's customer survive financial setbacks and bankruptcies simply by financing their receivables. Accountants also may refer customers to factors because they can help improve their clients' cash flow for operating expenses.

Bid more work For example, by factoring receivables, a landscape contractor in Eastern Massachusetts was able to accept a contract to install the landscape and irrigation, and perform the maintenance on a new office complex. The contractor increased his cash flow, which allowed him to buy materials and supplies, pay his laborers and purchase the necessary equipment needed to finish what became his largest job ever.

But you don't have to be a contractor to qualify for alternative financing via factoring. Architects, engineers, surveyors and suppliers, who more than ever, are having difficulty obtaining financing, can increase their own cash flow to grow their business, complete their work on a project and use that success to obtain new work.

Factoring can help your business grow In another example, a commercial landscape contractor in Florida was a candidate for factoring. He inquired about points-the percentage he would be charged to factor-and how soon he would be able to receive the monies he needed. In this case, the contractor was eligible to receive an advance, under a no-term contract, with no credit risk, equivalent to 65 percent of a specific invoice totaling $25,000. Thus, he could receive $16,250 in cash wired directly to his bank account.

The contractor agreed to pay the factor a fee of 4 percent of the total invoice for the first 30 days as a fee on the $25,000. In other words, he would pay $1,000 to factor a $25,000 invoice for 1 month. He would receive the balance of the money-$8,750 less the $1,000 fee, for a total of $7,750-after receipt of the funds due toward payment of the invoice. He therefore received $16,250 immediately, plus $7,750 later, for a total of $24,000 for his $25,000 invoice.

The contractor was reluctant at first. He said he was operating in an extremely competitive market, his gross margin was 18 percent, and his annual overhead was $37,500. However, he felt that if he had "unlimited funds," he could double his business. "I would be doing $1 million in sales if I had unlimited funds. I'm turning away business now because I don't have the cash flow to handle it," he said.

This is a familiar scenario. However, many contractors wonder if doubling sales would also mean doubling overhead. The answer usually is "no." The extra $500,000 in sales might only cost him an additional $17,500 in overhead expenses because businesses usually do not need twice the space or twice the employees to double their volume. The economy of scale allows for an increase in net profit.
Without factoring, this contractor made $52,500 gross profit on $500,000 in sales. But, by factoring 100 percent of his receivables, he only had to factor $500,000 out of a projected $1 million in sales to generate a gross profit of $105,000. His annual cost for factoring was $20,000 (see table, above).

Factoring helped him grow his business by taking advantage of discounts offered by suppliers and early payment terms. Factoring also enabled him to accept larger projects that substantially increased his bottom line.

Keep in mind that factors do not buy retention. Retention is where the owner withholds a percentage of monies until a project meets the owner's satisfaction. What factors do is supply cash-cash to help you meet your payroll, tax and insurance needs, and to help you pay your suppliers and achieve greater discounts.

Factoring can be extremely convenient and fast. Factors can provide bank-to-bank wire transfers, do not require long-term contracts and will factor as many or as few invoices as you require. They don't need your financial statements and, in some cases, they can provide funding in 24 hours.

So, when your bank says "no," many times the factor will say "yes." To a factor, your receivables are as good as cash. If you're a business start-up, the factor may be able to help you, too.
Evaluate your company's needs Factoring is not for every business.

You may already have adequate cash reserves available, or you may be better served by a traditional bank loan, asset-based lending or venture capital. Each form of capital generation has its positives and negatives, and you should carefully research each before you make a decision. However, factoring is a tool that can improve your business's cash flow almost immediately. Factors typically require a simple two-page application and can begin to provide cash assistance to a business within 7 to 10 working days.

Q. What type of receivables are acceptable? A. Just about any valid business-to-business invoice for services performed or product delivered.

Q. What is required before an invoice may be funded? A. Your customer must be creditworthy and your product or service must be completed, delivered and accepted by that customer.

Q. Does the factor bill on our letterhead or yours? A. You continue to bill normally. Checks may be made payable to you but mailed to the factor.

Q. What does it cost? A. Factors' fees vary. Typical fees for 30 days range from 3 to 5 points. Fees are lower for shorter time periods or for reduced advances.

Q. Are government receivables acceptable? A. Yes. Factors handle a considerable amount of government- or municipal-related receivables.

Q. Must I agree to finance a minimum volume of future receivables? A. No. Finance one invoice or as many as you need to meet your cash flow needs. Stop when you wish or continue as needed.

Q. What will my customers think? A. Of course, you can't absolutely control what your customers think. However, you should remind them that receivables-based financing is a well-established practice used by many businesses, large and small, to improve cash flow, support growth and increase profits. Many of your customers may use this service themselves and others have become familiar with it through other vendors. Portray the fact that you qualify for this unlimited "credit line" as a positive statement about the health and stability of your business.

Q. Can we qualify with a history of credit problems such as bankruptcy, IRS liens or judgments? A. Yes. That's another advantage of utilizing this service. Factors often make arrangements with the IRS or the courts.

Q. Can we qualify if we already have existing credit lines or SBA loans? A. Yes. Factors can complement and work in cooperation with your existing lenders.

We've all seen the hype: "We'll put your plan in front of thousands of investors!" "We'll write you an award-winning online business plan!" "Only $3,000 for thousands of investors to learn about your company!"

I cringe every time I see one of these ads. Vultures are preying on honest business people who want to fund their businesses. Here are some ways to spot them:

1. "Only qualified investors see your business plan." Yeah, sure. And who "qualifies" them? Have a friend try to sign up as an investor (that part is usually free). How is she "qualified"? Is there a background check? Does she submit a financial statement? Odds are that she will be asked to do nothing more than sign a statement that she has a certain net worth. That's no "qualification" in my book. So who are these "investors"? Who knows. One could be your strongest competitor.

2. "You approve anyone who sees your business plan." Okay. So what are you going to do to qualify the potential investor? Are you going to run a background check? ask for ID? ask for tax returns? or just be so happy that anyone wants to see your business plan that you jump on the idea? (That's how these scams get away with charging thousands of dollars -- too many entrepreneurs are desperate for funding.)

3. "It's only $500 (or $300 or $100) to register." What does it matter if it's free? If it is diverting your time and energy and resources away from finding a viable investor, it's not worth it.

4. "Your idea is great, but we need to put it into our format. This will only cost $800." Don't walk -- run from these guys.

5. "Your idea is so great that we want to invest $2,000 in it." (That's after you spend $5,000 to put it into "their" system.) Do I really need to comment on this?

6. "Talk with a satisfied customer, or 2 or 3." Here's this entrepreneur who just got $2 million in funding, and he has nothing better to do than sell the web scam to you? Trust me, entrepreneurs who just get funded barely have time to eat, let alone talk.

7. "Look at all these written testimonials." This is harder to disprove because the testimonials look so real -- even the companies might be real. But unless the testimonials, and the companies, can be verified independently, I wouldn't trust them. And I'll lay odds that they cannot be verified independently.

There is one huge exception to this: ACE-Net (http://activecapital.org). This is more properly the Access to Capital Electronic Network run by venture capitalists, institutional investors and individual accredited investors. It was developed by the U.S. Small Business Administration's Office of Advocacy to encourage the creation of a national marketplace for investors to find and invest in equity offers by small companies.

ACE-Net isn't for all companies. Those seeking under $1 million will probably find the paperwork daunting. Those seeking over $5 million won't qualify. There are special qualifications, and of course lots of forms to fill out -- but nothing like the forms required for a formal initial public offering.

But for those who do qualify, it's an amazing tool in raising financing. Spend some time with the website and the forms, and see if your local SBA office can put you in touch with another company that went through the process.

As with any investor tool, don't rely exclusively on ACE-Net. Use it in conjunction with your personally developed targeted funding search. This, combined with an exceptional business plan, doesn't guarantee success but it places your company head and shoulders above all the rest.

Written by MaryAnn Shank of Business Plan Master

Accounts Receivable Factoring is the process by which you sell the right to collect on your receivables to another firm

Accounts Receivable Factoring is often thought of as a type of loan - strictly speaking it is not, because the receivables are not used as collateral by the factoring company, they are actually sold to the factoring company.

Accounts Receivable Factoring provides cash when you need it, fast.

Accounts Receivable Factoring turns 30-, 60-, and 90- day receivables into cash within hours (once you've established your factoring relationship)

Accounts Receivable Factoring provides cash without debt - strictly speaking cash from factoring is not a loan, as you are selling the debt.

Accounts Receivable Factoring improves your cash flow.

Accounts Receivable Factoring helps companies that are growing fast, by providing the cash that growth requires.

Accounts Receivable Factoring provides cash for capital expenditures.

Accounts Receivable Factoring provides cash for payroll when times are tight.

Accounts Receivable Factoring allows a company to raise cash when it is unable, or unwilling, to increase its debt load.

Accounts Receivable Factoring provides a fast way to raise cash without giving up equity.

Accounts Receivable Factoring represents an ongoing source of cash.

Accounts Receivable Factoring can improve or protect a company's credit rating.

Accounts Receivable Factoring gives you a way to use cash to purchase supplies at a discount, rather than purchasing on more expensive terms.

Accounts Receivable Factoring helps you provide better terms to your customers, making getting the sale easier.

Accounts Receivable Factoring is fast; once the relationship is set up, cash can be in your hands in literally hours.

Accounts Receivable Factoring doesn't require long-term commitments.

Accounts Receivable Factoring can help existing, well-established businesses as well as startups and businesses in high-growth phases.

Accounts Receivable Factoring creates a situation in which all your customers are, in effect, on a COD basis.

Accounts Receivable Factoring is a very widely used form of financing, employed by many thousands of companies each year.

If you think factoring may provide your company with the cash you need, contact us now. We'll talk with you and help you figure out if pursuing a factoring loan is the right path for you and your business.

Amid fundraisers growing concerns about the current charitable giving climate, dampened by the erratic stock market and shaky economy, a new fundraising opportunity has emerged ? Life Settlements.

What is a Life Settlement? A Life Settlement is the sale of an existing life insurance policy for a lump sum of cash that is more than the cash surrender value. A life insurance policy is property, like a car, house, stocks and bonds that can be legally sold in accordance with applicable laws. Through a Life Settlement, a policy owner can realize value today from an asset that is generally thought to only have a benefit when the insured passes away.

How can Life Settlements be used in Fundraising? There are many variations and complex estate and tax planning strategies that can be employed when utilizing Life Settlements in a planned giving program. However, in its simplest terms, a Donor who owns a life insurance policy gives the policy to the philanthropic organization that in turn immediately sells the policy for a lump sum of cash through a Life Settlement.

In order for a policy to be eligible for a life settlement, it must meet the following criteria:

- Insuring an individual over age sixty-five (65) or with a serious illness

- With a face value of at least $100,000

- Issued over two (2) years ago

Donor Benefits:

- Making a donation to his/her favorite philanthropic organization without depleting cash reserves or losing income-producing assets;

- Getting a tax deduction for the fair market value (selling price) of the life insurance policy instead of only the cash surrender value;

- Being able to see their donation put to use during their lifetime rather than after their death if the organization did not utilize a Life Settlement;

- Eliminating the requirement of continued premium payments on the policy;

- Removing a taxable asset from their estate if the policy was individually held.

Organization Benefits:

- Receive a donation from a Donor who may not have otherwise been in a position to contribute at all;

Collect a lump sum of cash today instead of having to wait for the insured?s death to collect the proceeds;

Not having the financial burden of paying premium payments to keep the policy in force;

Providing a valuable option to the Donor that furthers their tax and estate planning objectives and invites the opportunity for future/additional gifts.

Improved annual budget forecasting ability

How Does a Life Settlement Work?

Once the Donor is considering gifting a life insurance policy to the organization, the life insurance policy should be appraised. Typically, a Life Settlement Broker can determine its eligibility for a life settlement and will undertake it to obtain the highest offer for the policy.

The value of a life insurance policy is determined by a number of factors, including, but not limited to, the age and medical condition of the insured, type of insurance policy, rating of the issuing insurance company and amount of premium payments to keep the life insurance policy in force. Most types of insurance policies can qualify, including universal, whole life, and converted term. When a mutually agreed upon price is determined for the life insurance policy, the organization that now owns the policy is paid a lump sum in cash, the ownership and beneficiary rights are transferred to the purchaser. All future premium payments are the responsibility of the purchaser and upon the death of the insured, the death benefit is payable to the purchaser. The cash proceeds from the Life Settlement may be used by the organization in any way ? there are no restrictions regarding the use of the funds. The money may be invested or spent on current projects. Because some Life Settlement Brokers offer fundraising support, it makes sense for organizations to partner with them for their expertise.

Life Settlement Regulations

As of June, 2003, eighteen (18) states have enacted statutes addressing the sale of life insurance policies insuring non-terminally or chronically ill individuals and an additional seventeen (17) states have laws that only regulate the sale of life insurance policies insuring terminally or chronically ill individuals. Fifteen (15) states do not regulate the transaction at all.

Donated Life Insurance Policies

In addition, most philanthropic organizations currently own life insurance policies that have been donated in the past. If there is a need for funds sooner rather than later or if the premium payments are becoming burdensome, the organization can utilize Life Settlement transactions to sell those policies for lump sums of cash and put the money to work right away.

Life Settlements are powerful arrows in the quivers of professional fundraisers ?

Generating money for their organizations by encouraging current gifting of life insurance policies
Turning already donated life insurance policies into cash

Written by Jolene Fullerton of First Secured Life

By now, every personal injury attorney has heard of litigation funding - the non-recourse sale of a portion of a plaintiff?s future settlement proceeds in exchange for cash today. In recent years, the availability and use of litigation funding has grown rapidly and most attorneys now recognize the need for plaintiff financial support. A 2001 survey by Lawyers Weekly asked a simple question: Should Litigation Funding Be Permitted? Of the 1,876 votes cast, 82.5% responded yes.

However, reminiscent of the criticism faced by trial attorneys over contingency fees, litigation funding companies must respond to the same disparagements. Defenders of the status quo seek to brand litigation funding as profiteering by scoundrels taking advantage of the down trodden. They trot out such red herrings as champerty, usury and far flung theories of inherent conflicts to show how vexatious the practice really is. Sound familiar? Despite the criticism, we know the following: plaintiffs love it; defendants hate it; it is here to stay!

Equal Protection Requires Equal Access The lynchpin for every privilege contemplated by our founding fathers and codified in our constitution rests in one simple principle ? equal protection under the law. Since 1786 when pamphleteer Benjamin Austin called it ?a pernicious practice?, contingent legal fees have been criticized non-stop. Yet today, it is the most widely used fee agreement in the United States. Why? Simple ? because it works! The contingent fee system helps to achieve the goal of equal protection by facilitating access.

It is axiomatic that there can be no equal protection when access to the court system is unaffordable by a significant segment of the citizenry. The entire raison d?etre for contingency fees lays in this basic access issue. So persuasive is this point that, over the years, courts, have systematically removed virtually every barrier preventing access to the court system. From contingency fees to attorney advertising to champerty, laws preventing access, in even the most indirect ways, have bitten the dust.

Perhaps Judge Michael A. Musmanno said it best:

"If it were not for contingent fees, indigent victims of tortious accidents would be subject to the unbridled, self-willed partisanship of their tortfeasors. The person who has, without fault on his part, been injured and who, because of his injury, is unable to work, and has a large family to support, and has no money to engage a lawyer, would be at the mercy of the person who disabled him because, being in a superior economic position, the injuring person could force on his victim, desperately in need of money to keep the candle of life burning in himself and his dependent ones, a wholly unconscionably meager sum in settlement, or even refuse to pay him anything at all. Any society, and especially a democratic one, worthy of respect in the spectrum of civilization, should never tolerate such a victimization of the weak by the mighty." Richette v. Solomon, 187 A.2d 910, 919 (Pa. 1963).
However, affording a lawyer is only one part of a plaintiff?s challenge. A claimant must also have the ability to sustain themselves during the pendancy of their action. After all, what good is retaining an attorney, if you can?t afford the basic necessities of life? How are financially stressed plaintiffs to sustain themselves during the pendancy of their litigation which may be the cause of their financial condition in the first place?

Litigation Funding One answer is litigation funding. Being able to stay the course is a prerequisite to fair treatment and this simple transaction can help level the playing field with a well-heeled adversary. This fact was recognized by the Massachusetts Supreme Judicial Court in the 1997 case of Saladini v. Righellis, (426 Mass. 231, 234) when it noted:

"We have long abandoned the view that litigation is suspect, and have recognized that agreements to purchase an interest in an action may actual foster resolution of a dispute." Other superior courts seem to be persuaded by the Massachusetts court including the Supreme Court of South Carolina which relied heavily on Saladini when it abolished champerty in Osprey, Inc. v. Cabana Limited Partnership, 532 S.E.2d 269 (S.C. 2000). In fairness it should be noted that the Supreme Court of Ohio held a different view in Rancman v. Interim Settlement Funding Corp.99 Ohio St.3d 121, 2003-Ohio-2721. However, Ohio is in the minority and the doctrine of champerty may one day meet its final well-deserved death sentence at the US Supreme Court when the applicability of the 14th Amendment is determined. (Bennett v NCAAP 370 S.W. 2nd 79 82 (Ark 1963).

What are the real issues?
Aside from 15th Century English Law, what are the real issues today? The perception is there is nothing in it for attorneys, at least not immediately or directly. Providing information to the funding company, administering the execution of the contract and observing the lien are all a nuisance for plaintiff?s counsel. However, despite this, more and more PI attorneys are forging relationships with funding companies because their clients need it, and they have found that reputable experienced companies can prove to be an invaluable resource.

Cost?
The most common criticism is the cost. The average amount paid for bodily injury insurance claims suffered in motor vehicle accidents is small - less than $10,000. Thus, it should not be surprising that the average litigation funding contract is also small. Most contracts are for $1,000 to $5,000. Consumer financial products have relatively fixed transaction costs meaning that smaller deals are nearly as costly as larger ones. It follows that, because of their small size, the average fees on litigation funding contracts will unavoidably be high.

That having been said, the very growth of the business will resolve the issue of cost. The marketplace will set prices just as it does with contingent legal fees. Once the there is enough experience for the true risks of these transactions to be widely known, investors will price the risk to a corresponding level. Already, fees have dropped significantly. Only a few years ago it was not uncommon to find fees of 15% per month compounded ? with no cap! This is now rare.

There are three basic fee methods used by most funding companies:

1. Monthly interest or fees. These can range 3% to as high as 15% per month with no cap.

2. A percentage of the recovery.

3. Flat fees that are capped and may or may not have a discount for early payment.

(Attorneys must beware of large fees at closing that serve to raise the true cost significantly)

A valid concern is that, with monthly fees rising with no cap, clients might be tempted to take a settlement just to stop the fee increases. This not only injures the client?s chances of a fair recovery but also limits the attorney?s fees. Fortunately, capped fees are always available in the market.

While the marketplace place will continue to drive price levels toward equilibrium, it should be comforting for those with no faith in market forces to remember that, in the final analysis, the court has the final say and can set aside abusive fees. Schlesinger v Teitelbaum, 475 F2nd 137, 141 (3rd Cir), cert. denied, 414 U.S. 1111 (1973)

On this issue Saladini is very much on point: ?This means that if an agreement to finance a lawsuit is challenged, we will consider whether the fees charged are excessive or whether any recovery by a prevailing party is vitiated because of some impermissible overreaching by the financier.?

Is it really a loan in disguise? Litigation funding contracts are almost universally non-recourse. The definition of a loan is blackletter law. If any part of the principal or interest is contingent on an event that is ?more than a mere colorable hazard?, the contract is not a loan. A challenge on the grounds that the requisite degree of hazard is not present would have to be adjudicated case by case, each case being unique. Bear in mind that the funding company is subordinate to attorney?s fees and costs, statutory liens and prior liens. The risk for an attorney is substantially better than for the funding company that is last in line. Many regulatory authorities from attorneys general to banking commissioners have reviewed the practice and taken no action. It seems clear that non-recourse means non-recourse and that litigation funding is a risky business.

Draconian Contracts

A second widely held concern is the use of contracts with draconian clauses. While the enforceability of such clauses is questionable at best, they still present a formidable nuisance value. Typical objectionable clauses are:

? Prior permission of funding company required to change attorneys

? High liquidated damages

? Waiver of all defenses

? Disclosure of non-discoverable information

Most reputable companies have modified their contracts to address these concerns.

Ethics

George Kuhlman, ethics counsel for the American Bar Association, was quoted in Lawyers Weekly USA as stating: "The problem only comes in when lawyers are acquiring an interest in the subject matter of the litigation, but anybody can buy a piece of someone's judgment. I don't see any lawyer involvement so I don't see any problem. This is a third party becoming involved; making sure people can survive their judgments."

With one exception, all Ethics Opinions of which we are aware find litigation funding ethical. Michigan finds contracts with certain clauses to be impermissible.

State Bar of Michigan Ethics Committee Opinion RI-321, June 29, 2000

1. The ultimate control of the litigation may be transferred to the venture capital corporation due to the fact that the lawyer is permanently appointed to the case;

2. The original lawyer cannot be terminated without the venture capital corporation?s consent in light of the fact that on demand of the venture capital corporation all documents and things must be demanded by that group; and

3. Privileged materials may be disclosed.

As experience grows, capital will enter the business in ever increasing amounts, making it fairly commonplace while competition will undoubtedly mold the product, and fix most, if not all, of the problems.

Many savvy attorneys understand that litigation funding is not going away anytime soon and they are embracing it and learning how best to use it. They are forging relationships with funding companies and using their services to meet the needs of their clients. In doing so, they get the added benefit of negotiating for a client that is no longer under the unnerving and destabilizing effect of financial duress.

Written by Wayne Walker of CapTran

A flooded basement, a broken piece of equipment, a loss of electricity from a thunderstorm when you're running a small business, the list of occurrences that can result in a sudden and unanticipated cash flow crisis seems endless. But when it comes to ways of getting the cash that's needed to deal with them, the list is alarmingly short especially when a small business owner needs funds quickly and under reasonable terms.

Where can a small business owner turn for quick cash? Certainly not traditional lending sources. Banks and finance companies are famous for steering away from lending money to small businesses. And the amount of time and paperwork required just to apply makes them an unattractive alternative, especially when a small business owner is facing a crisis.

But the good news is that there?s a relatively new method of providing financing for small businesses. A new breed of out of the box lender? has begun offering small business owners a unique method of receiving funds quickly by making loans on the basis of credit card receivables and offering surprisingly favorable terms. This method is particularly attractive for restaurants.

Credit Card Receivable Financing companies advance money to restaurants and other small businesses by looking at their Visa and MasterCard (VS/MC) sales for the past 12 months. They then lend 70 to 100 percent of the average monthly volume of VS/MC sales, arranging for repayment of the loan by taking an assignment of future credit card sales.

The standard term of the advance is six months, although it may be extended to up to 12 months in certain circumstances. Payment is made automatically by withholding from the restaurant?s daily credit card batch settlement. The lender arranges for credit card transactions to go through a processor with whom it has a working relationship, then withholds a portion the standard is 15 percent of VS/MC sales to amortize the loan. Payment is automatic, meaning that a small business owner with a lot on his mind doesn't have to worry about sending a check. In addition, once a relationship has been established with this type of lender, re-upping or taking out additional loans is quick and easy. In fact, this type of lender can be viewed as a readily available source of cash. This method of financing offers restaurants two tremendous advantages: the ease of the deal and a quick turnaround time. But another outstanding benefit is the exceptionally low financing cost. A typical cost of the advance is approximately $1,059 for every $10,000 advance over the standard term. In other words, the payback ratio is 1.1059, meaning the restaurant owner pays back $1.1059 for every $1.00 borrowed. In addition, the flexible payments make this arrangement ideal for restaurants and other small businesses. The payment is a percentage of VS/MC sales and not a fixed amount. If the business is doing well, the loan is paid back more quickly, thereby minimizing interest costs. The other side of the coin is that if sales are slow, the owner isn?t under pressure to make the fixed payment amount. The actual interest costs can vary depending on the daily sales figure since the payment amount is a percentage of VS/MC sales.

As some companies package their financing as sales and purchase of the merchants future credit card sales, it may not be easy to compare the deals that are offered. However, there are two aspects of the deal that it are important for small business owners to consider. First, is the amount of total payback versus amount of funding they will receive. This is typically described as "payback ratio" and it is calculated by dividing the payback amount by the funding amount. The second is the daily withholding percentage. This percentage represents the amount the lender withholds from the merchants daily credit card batch. In both cases, the lower the number, the better. By shopping around for the right lender, a small business owner can save $2,466 on a typical $10,000 advance over a six-month term. If businesses renew their advance, as most do, they can save close to $5,000 a year on a $10,000 loan. The bigger the advance, the bigger the savings.

One example of how a small business can benefit from this method of financing is a restaurant in an upscale suburb of San Francisco. When the coupled who own it unexpectedly faced a crisis a sewer break in the building's foundation they found themselves in need of $6,000 to take care of it fast. They took advantage of this type of financing, receiving the money so quickly that there was absolutely no interruption of business. With a daily gross of $3,000 to $4,000 a day, they found that this type of deal was well worth it. In fact, they opted to obtain funding this way other times, using the money to purchase better equipment.

By using credit card receivables financing, getting approved for a loan is much easier and faster than it is when applying for a bank loan. In fact, it can take as little as five to seven business days from submitting the application to receiving the funding. When a restaurant or other small business is in a slow period, when an unexpected problem comes along or even when business is so good that a restaurant is looking to expand the cash that's needed is available.

Written by Woochae Chung of American Microloan

Do you need quick cash? Do you own notes, a structured settlements or are you a business owner waiting for invoices to be paid? Learn how to turn all these situations and more into quick cash.

There is a wide variety of privately held (and usually privately originated) debt and other cash flow instruments that are actively bought and sold. Operating somewhat like secondary markets in the banking and institutional lending arenas, the private cash flow market provides cash flow asset holders several huge advantages not often obtainable through traditional funding pipelines - including flexibility, availability, and softer underwriting requirements.

Seller-financed transactions have existed for decades - and potential buyers for these seller-originated cash flow debt instruments have existed right alongside. Essentially taking root in the private real estate note arena some 60 years ago, the private cash flow industry has gradually grown to encompass a wide spectrum of diversified debt instruments throughout the past few decades - as more and more participants continue to explore, and underwrite, potentially profitable financial niches.

Sovereign Funding Group acts as a broker working on your behalf. Currently we have a network of over 100 investors who purchase alternative cash flows. A more recent trend in the secondary market is the purchasing of non-debt related forms of cash flow instruments as well. We have seen such esoteric cash flow instruments as annuity agreements, structured settlements, viaticals, lottery awards and similar prize entitlements, pension benefits, royalty agreements, deferred casino winnings, deferred sports contracts, and more, all joining the parade of purchasable cash flows.

Approximately 60 identifiable debt and cash flow instruments - including the non-debt-related instruments above and others such as commercial receivables, business notes, medical receivables, automobile, marine and aviation paper, equipment leasing contracts, timeshares, government contract payments, retail installment contracts, manufactured housing paper, and the granddaddy of them all, real estate notes - are all actively bought and sold in private secondary markets.

The ability to tap into the liquidity that these cash flow instruments represent creates a buffet of possible options for sellers, and their advisors, to access funds quickly. In addition, being aware of the various options available in the private secondary cash flow markets can assist in both forward planning and mitigating situations where liquidity may not be a primary issue, such as avoiding excessive taxation and other forms of transactional friction, estate planning, family law issues, partnership dissolutions, portfolio building, and even asset protection under the right circumstances.

The sales process involved in selling a private real estate notes is very similar to that of most other cash flow instruments and can frequently make a huge difference in solving a cash flow problem for our clients, whether they are doctors, debtors, investors, business owners, business buyers, developers, contractors, retirees, beneficiaries, devisees, or divorcees! And, as our secondary markets have grown and adapted, we have begun to see some crossover with traditional lending markets. With growing frequency, bank and mortgage company paper assets (including both performing and nonperforming portfolios) are being marketed through our services. And, we are seeing increasing numbers of loan origination packages coming through the door, particularly for the larger and more difficult to close lending transactions, including commercial, development, and residential related hard money and construction funding deals.

The crossover of these alternative cash flows trading into the private cash flow industry has allowed Sovereign Funding Group to expand our product lines and greatly diversify the scope of solutions that we are able to make available to our clients.

We look forward to being acting as your professional advisor. Sovereign Funding Group can usually provide quotes within 24 hours and money in 3 to 4 weeks.

With No Risk, No Expense & No Pressure - What are you waiting for?

Feel free to contact us anytime for a free consultation at (877) 836-4661 or email us at info@sovereignfunding.com