New Law Places Louisiana at the Forefront of Small Business Financing Innovation
The Louisiana legislature passed a law, signed by Gov. Bobby Jindal, making the sale of commercial receivables over electronic exchanges located in Louisiana defensible on a national level as a “true sale” of the asset. A strong true sale statute assures buyers on electronic exchanges that assets they have purchased cannot be recharacterized in the event of seller insolvency. This move establishes Louisiana as a leading innovator in the area of small business financing, and is the latest sign that receivables finance as a capital management tool has entered the mainstream.
“This legislation is a tremendous win for capital providers of all types and B2B businesses nationwide,” said Robert A. Zadek, a preeminent expert in commercial finance. “Receivables finance is the most effective way for businesses of all sizes to source working capital in today’s world. The advent and growth of electronic exchanges for trading receivables means that even more buyers and sellers will be able to participate in what is rapidly becoming an established capital marketplace.”
The Louisiana Exchange Sale of Receivables Act (Act 958), authored by Louisiana Senate President Joel Chaisson, explicitly defines the electronic sale of receivables as “true sales,” and prevents jurisdictions outside Louisiana from characterizing them differently. Defining such transactions as true sales makes the purchase of receivables more secure, and is an integral part of online receivables trading, a valuable small business financing alternative. As governments and private enterprise look for solutions to the small business credit crisis, this legislation vaults Louisiana to the forefront of states taking an active role in fixing the problem. The Receivables Exchange, the world’s first online marketplace for the real-time trading of accounts receivable, based in New Orleans, will benefit from the new law, which will protect buyers who use its platform and foster continued growth for the company.
“Financing and legislation need to keep pace with 21st century business if companies are to thrive in the new credit reality,” said Nic Perkin, co-founder and president of the Exchange. “With the passage of Act 958, Louisiana and The Receivables Exchange are revolutionizing the business financing landscape, and ensuring that companies of all sizes will have the unfettered access to the competitively-priced capital they deserve. We’ve now made it possible to trade receivables efficiently on a large scale, opening doors to an asset class that had been closed off. This law moves exchange-based receivables finance solidly into the mainstream.”
Louisiana has been a valuable partner as The Receivables Exchange continues to expand. At a press conference in January, Gov. Jindal praised the company’s innovation and dedication to the state, as the Exchange announced its $17 million Series C financing led by Bain Capital Ventures with reinvestment from Redpoint Ventures and Prism VentureWorks. In May, the company announced 66% month-over-month growth in receivables sold in March 2010.
The Receivables Exchange’s rapid growth establishes receivables financing as an affordable mainstream small business financing tool, and highlights the unmet demand for alternative forms of financing for the nation’s millions of SMBs. Most firms have more than 60% of their working capital tied up in their accounts receivable. The Receivables Exchange lets them sell their receivables to institutional investors in a competitive, real-time marketplace, giving them access to a flexible, affordable source of capital. Most auctions on the Exchange last one day and Sellers can obtain cash at an average of 98 to 99 cents on the dollar.