"It's all about cash flow," she explains. "It's not really about companies in distress. It's about companies improving their cash flow and liquidity so they can invest in day-to-day operations."
Laurie outlines the example of a start-up company faced with huge demand for the goods they produce. With a large number of orders pending, the company has a promising future, but may not have the available cash flow to begin manufacturing to meet that immediate demand. If they can't fill their orders, the company could fail.
In traditional receivables financing, the company would approach a lender like CIT, which could buy their invoices to give them a quick infusion of capital, then wait 60-90 to receive repayment when their customers pay the bills.
TRE has shattered that mold by creating a locus where businesses in need of immediate capital can auction their outstanding invoices to the highest bidder. Like a typical auction, sellers decide how long they will accept bids and can set a reserve price, below which they would not sell. And like Ebay, TRE has a kind of "buy it now" option. According to Laurie, 86% of their auctions close at the buy out price. After the sale, the company receives payment for their invoices within 24 hours. Laurie describes it as "a whole new capital marketplace for small and mid-sized businesses."
In particular, TRE is well suited to assist entrepreneurial start-ups because the buyers assess the credit ratings of companies with outstanding invoices available at auction, rather than simply the business selling them. So new companies can leverage the re-payment record of their customers, rather than having to convince a bank of their own reliability.
The co-founders of TRE are well suited to upend the traditional model of small-business financing. A veteran of a number of start-ups, President Nicolas Perkin knew the strain cash flow problems could impose on small and mid-sized business, and CEO Justin Brownhill has a long history of experience in capital markets and finance.
Nicolas describes the company's goal as "to ensure that new mechanisms for accessing working capital are supported and advanced in such a way that small businesses are no longer reliant on a single source of capital but instead are ensured access to a diverse and reliable pool of funding sources."
Considering all the discussion this week of a looming crisis for small and mid-sized businesses who have relied on CIT's financial support for so long, a diversification like Nic describes seems to be of critical importance.
Laurie stresses that TRE does not want to opportunistically seize on CIT's downfall, but if the anticipated bankruptcy happens, "the reality is that there will be one million small and mid-sized businesses in need of immediate capital." Regardless of any discussion about banks stepping in to assist CIT's customers, "Banks have not focused on this for 100 years. You can say they're there, but they're not set up to help the small business owners. This could create a major liquidity crisis for small and mid-sized businesses."