Underwriting standards at banks have tightened up during COVID-19 and a traditional loan may not be an option for wireless infrastructure companies looking for funding. Kompass Funding offers several alternatives to help companies increase cash flow and grow their businesses.
The private financial institution provides clients with the capital, “they need to achieve their dreams,” says John Minnis, CEO and Managing Partner. Kompass’ objective is to “empower growth-oriented companies by bridging the financial gap from where they are today, to where they need to go.”
Kompass takes a holistic approach, offering four, specialized services. The first is factoring, or invoice financing. Kompass purchases a company’s accounts receivables for a discount (a small fee), to provide instant funding.
The second option, reverse factoring, is similar, except that Kompass is purchasing accounts payable from a vendor, to pay their clients faster.
The third alternative is niche financing, which works like a traditional bank loan, although private funds are used.
Structured equity is the fourth possibility, allowing companies to receive the capital they need, without giving up control.
Kompass Funding is part of Kompass Kapital Management (KKM), a family-owned company, which has a long history of investing in the tower space. “We may be a relatively small company now, but we have access to all KKM’s services, such as human resources, accounting and finance. We started with factoring but quickly realized that we could also provide term loans. This evolved into doing structured equity, as some of our loan clients experienced exponential growth,” says Minnis.
According to Abigail Nolte, Operations Manager, Kompass hasn’t come across any other factoring or funding companies willing to tailor programs specifically to the telecom industry. “When we were doing business opportunity research, and talking with maintenance and cell tower companies, we found that there used to be a financing arm within the company structure that no longer exists. There is certainly a need,” says Nolte.
Nolte notes that customer needs are always changing – some agreements that began with factoring, ultimately transformed into structured equity deals. “The relationship is always evolving,” says Nolte.
Factoring and reverse factoring have long been utilized in other markets, like trucking and staffing. After investigating, Kompass recognized a common theme in telecom — large wireless providers making smaller maintenance and service contractors wait 120+ days for full payment. This can be detrimental to businesses already struggling with COVID-19 fallout.
Kompass’ program can fund companies within a couple of days of submitting an invoice. “There is a certain cash flow constraint on cell tower companies when clients and wireless providers are not paying for 60/90/120+ days and we’re here to bridge that gap,” says Minnis.
One success story involves a third-generation, family-owned business. The company had secured several new, multi-year contracts with promising clients but was reeling from past financial mistakes. They needed a loan to grow and could not work with a bank. After thoroughly researching the company and the new contracts, Kompass provided a term loan which enabled the company to buy the equipment and hire the staff needed to fulfill their obligations. Kompass also factored some receivables to provide immediate cash. The family-owned business and Kompass are now working on a structured equity partnership.
Building out 5G will also create a need for more capital, whether it’s to grow an existing company, or to launch a startup. “Workers from larger companies may branch out and start their own company and, since they aren’t established, will need help,” says Nolte. That’s where Kompass steps in.
Factoring offers key benefits over bank loans, according to Nolte. Bank loans require a lot of paperwork and factoring simply requires a review of credible accounts receivable. Kompass’ factoring program handles all of the backend invoice management.
Bank loan repayment includes interest payments whereas factoring does not, since the fees are included as a percentage of the invoice. Factoring does include an initial credit check during setup. However, Kompass is more concerned about the credit history of the company’s client, since they are the debtor. Banks perform enhanced credit checks and, if a loan is granted, the loan shows up as a liability.
Kompass stands on its core values to empower client growth, to bridge their financial gaps, and to always have a win-win attitude. “We want to make sure that every party wins from doing business with us. We also emphasize our organizational skills through solid standard operating procedures. We want to ensure a better experience, from underwriting and onboarding, to servicing the client,” says Minnis.
The company plans to expand into other industries, increase their volunteer hours to the community and educate companies that may not fully understand the benefits and process of factoring.
“We don’t want to just help companies survive the impact of COVID. We want to help them grow and get to the point where they don’t need our services. If we do everything right, a company should not be a client of ours after a year or two,” adds Nolte.