California Apparel News recently spoke with finance-industry executive, Ken Wengrod, to find out how lenders approach financing new businesses and how selling to e-retailers differs from selling to a bricks-and-mortar retailer.
When a new apparel brand approaches you about financing, what do you look for to determine if you will factor it?
If a brand sells to online sites, such as Revolve Clothing, how does this affect its ability to get factoring? The most important elements are character, character, character. It's more than just looking at a specific credit rating. I also look to see how the owners have been handling themselves when there was a problem.
Are they the type to come up with stories and blame others or do they take responsibility for their actions? It's very comforting to know when an individual has been through extreme adversity and overcame it. Adversity builds character.
It's important to see if owners have the strategic vision to distinguish themselves from their competitors. The owners need to know what the company does best and understand the rules of engagement. Then break those rules and create their own. They need to be leaders, not followers and stay focused.
The owners need to surround themselves with people with complementary skill sets. Successful companies have a team of great designers/merchants along with competent businesspeople.
Second, the management has to have the ability to execute its business plan and take ownership of it. Management needs to be on top of its financial numbers. If the owners tell me to "go speak to my outside bookkeeper or accountant," it's a red flag.
They should know firsthand what's going on with their financial status and understand their capital limitations. It's very important to grasp the financial creativeness of the management team and its ability to leverage its supply chain.
The mindset of the owners needs to manage funds as if they were their last cent. They need to have a conscious strategy of knowing the end game and refrain from excessive spending (e.g., spending too much on sampling and creating an excessive number of items in a line).
The team needs to truly understand its ultimate consumers and inspire them. Consumers tend to get confused when there are too many selections.
If the company sales are with online distribution sites, such as Amazon and Net-a-Porter, we treat these sales the same as if you were selling your products to some other bricks-and-mortar stores.
We have, however, noticed that there are fewer chargebacks for vendor compliance and markdowns in these online distribution sites. If the company is selling directly to consumers via its own online site, then it's difficult to provide traditional factoring.
FTC Commercial Corp