Commercial Factor Q&A: Gail Reints-Pratl Previews IFA’s Underwriting Essentials Class

In a preview of an IFA training class on underwriting essentials, Gail Reints-Pratl of Sky Business Credit provided an outline of the class as well as the importance of underwriting, especially in the midst of economic turbulence.

Underwriting is one of the most essential functions in forming any factoring relationship, so remaining sharp in this area is absolutely necessary for any factoring company. To help both newcomers to the industry and veterans who need a refresher, Gail Reints-Pratl, president and founder of Sky Business Credit; Laurie Martin-Montplaisir, shareholder at Robbins DiMonte; and Debra Zukonik, co-founder and chief credit officer of Dare Capital, will lead an underwriting training class for the International Factoring Association on Oct. 13 and Oct. 14. The hybrid event will take place at the Planet Hollywood Resort and Casino in Las Vegas, but it will also allow remote attendance via Zoom. More information on registration and accommodations can be found here.

Reints-Pratl spoke with Commercial Factor to provide a breakdown of what the class will cover, who can benefit from attending and her perspective on the importance of underwriting, especially in the midst of the economic turbulence of 2022.

What can you tell us about this class, both in how it will be structured and in terms of what it will cover?

Gail Reints-Pratl: We will be teaching the details of everything that goes into underwriting a new factoring deal, from reviewing the application package; performing due diligence; discussing legal aspects to consider upfront, during and after; as well as preparing for and, hopefully, preventing a workout situation. We will include case studies that will give attendees an opportunity to review application packages and scenarios to put in practice in a classroom setting.

This class is being offered in a hybrid model, but what are the benefits of attending the training in person and what are the benefits of the hybrid model?

Reints-Pratl: I highly recommend attending this class in person because there will be many opportunities, even outside of the classroom, to talk with myself, Debra [Zukonik] and/or Laurie [Martin-Montplaisir] one-on-one to ask questions or run something by us.  It’s not often you get two people with 25-plus years of factoring experience that you can have in a small group atmosphere to “corner” in person or a factoring attorney you can have a conversation with and also ask some questions if you want and get a little free advice. We will make ourselves available to those there in person who would like to speak with us about anything that we didn’t cover in the class or that is particularly pertinent to a particular situation they may have. 

Attending in person also provides networking opportunities with your peers. The three of us met at meetings much like this and we have learned much from each other and from the countless others that we have met at IFA classes and conventions through the years. 

The benefit of the hybrid model is that some attendees that otherwise would not be able to attend either due to scheduling conflicts in an organization or cost are able to benefit from material that will be covered in this class.

As IFA’s training and education committee chair, how does this class fit into the IFA’s overall mission to educate the factoring industry?

Reints-Pratl: It is our overall mission to educate the upcoming generation and those newer to factoring that want to learn and to share the perspectives that comes with experience in this unique industry. Those of us who have been in factoring for a lot of years need to be able to pass on our knowledge so that there can be future teachers and leaders. Underwriting is one of the most important aspects of factoring because if you don’t get a deal right on the front end, it could (and most likely) will come back and hurt you at some point.

As you mentioned, Laurie Martin-Montplaisir and Debra Zukonik will each be instructors for this class as well. How do you think each of their perspectives, as well as your own, will enhance the class?

Reints-Pratl: Laurie and Debra both bring many years of experience and knowledge in factoring. Laurie’s law practice is heavily focused on business and factoring companies. Laurie isn’t just a business attorney; she is an attorney with an expertise in factoring and counsels factors in the structuring and onboarding of new clients through the underwriting process, as well as any issues that may arise during the factoring relationship. Debra and I both worked for many years in several factoring and asset-based lending shops before opening our own. We have a wealth of information gained from this experience and are excited to be able to share this with the next generation of factors.  

Who do you think this class will be most beneficial for? Why?

Reints-Pratl: This class will be the most beneficial for those that have had some experience in factoring and understand it but are either new to underwriting or want additional training or a refresher course in underwriting from the ground up. Our industry is constantly changing, and not only is it vital to have the knowledge base but also to learn what others are experiencing in the industry.

While the class is aimed at people in underwriting roles, what benefits could those from other departments gain by attending this class?

Reints-Pratl: People in other departments other than underwriting could also benefit from this class. For example, a senior account executive, an operations manager or a sales person could also benefit from this class because understanding the many facets of what all goes into underwriting helps those in other roles better discuss factoring with prospects and clients as well as better manage the deal through the funding process. In fact, the most successful business development people are often those who could underwrite the deal themselves if it was necessary. They can cut the evaluation time in half by noticing unique aspects of a prospect’s business or history and obtaining the documentation necessary to evaluate the opportunity before underwriting has to ask for it.

Broadly speaking, as you’ll get into more detail during the class, what are some of the most important aspects or steps to the underwriting process?

Reints-Pratl: Broadly speaking, confirming the information that a prospective client has provided to the factoring company, gathering additional information to form a complete picture of a prospect and analyzing this information. We always say: “Trust but verify”. The analysis provided by underwriters is critical to evaluating and structuring a transaction. The due diligence aspect isn’t just running searches such as UCC and tax liens; it’s background checks on owners, and we’ll be talking about why we do this and what we are looking for as well as the sources that can be used.

There are also potential red flags to look for when reviewing an application package and how a deal is structured to set it up for success when it moves to operations. We will also cover exit strategies that should be thought about during the underwriting phase. 

There is a lot more that goes into underwriting and we will most likely have to have an Underwriting II class to cover the more intricate details, given that is the most important aspect of any factoring deal.

How have things like rising interest rates, higher inflation, supply chain disruption, etc. affected how factors underwrite today?

Reints-Pratl: Many businesses, including factoring companies themselves, are being affected by the current economic times. Rising interest rates, higher inflation and supply chain issues could have residual effects. Although these issues may not necessarily affect how factors underwrite deals today, potential consideration will need to be given to what happens if the client does run into supply chain issues and whether that will that affect the receivables that have already been purchased. The client could also have profitability issues due to higher inflation or rising interest rates that could cause their suppliers to increase cost of goods.

So, I would have to say that while the actual underwriting of the deal may not change, the underwriter may want to add to the recommended management of the account that there be more frequent review of the account and client from the account management team based on these issues. Underwriters should also have account management ensure clients are purchasing accounts without contingencies or potential for offset or deductions or anything that could cause a collectability issues on already purchased accounts should a client run into issues down the road. The analysis provided by the underwriter is not only critical during the initial evaluation of the prospect, but also in managing the client going forward.

What is your overall outlook for the factoring industry for the rest of 2022 and early 2023?

Reints-Pratl: Despite the current economic times, I think the factoring industry is going to see an uptick in business towards the end of 2022 and early 2023 as banks do more thorough reviews of the financials of clients with whom they have been very lenient, especially as Paycheck Protection Program money has run out for these businesses. These businesses will still need funding, and factoring is the perfect source for cash flow for growing businesses.