NEW YORK — Even without a major credit crunch on the horizon, business opportunities are expected to abound for firms specializing in alternative forms of financing.

Executives at factoring and nontraditional lending firms said an anticipated slowdown in consumer spending will put a further drag on economic growth and possibly limit access to traditional bank lenders.

Stuart Brister, president of GMAC’s commercial finance factoring division, noted that with "individual debt levels and individual bankruptcies at their highest levels in history," consumers are unlikely to return to vigorous spending habits. Meanwhile, domestic suppliers, both of finished goods and component materials, are battling depressed margins and "are doing all that they can to hang on. Those firms are facing a credit crunch right now. I see a definite tightening at traditional banking levels, with many firms seeking alternative financing, closing up shop or seeking an investment group to try to help them shore up their balance sheet.

"The demand for our product becomes greater as people move away from traditional lending sources."

That should also help asset-based financing activities at the factoring arm of Israel Discount Bank, according to Saul Langer, the unit’s senior vice president. "When banks tighten up, it tends to force business our way. This is not the best I’ve seen in terms of business and everyone is fighting for those opportunities."

Companies with strong intellectual property (IP) assets can now consider investment-grade, asset-backed securities transactions, a relatively new concept in the fashion industry and a specialty of UCC Capital. Candie’s Inc. in August structured such a deal with UCC, while the late Bill Blass was the first fashion designer to float an investment-grade bond to finance the sale of his company in 1999. The Blass deal was through an affiliated company, CAK UCC, with the bonds set to be paid off in 2009.

Robert D’Loren, president and chief executive officer of UCC, expects more bankruptcies in the year ahead as credit tightens for firms in distress: "I think it will get worse before it gets better. The economic conditions are an ideal scenario for us because it heightens the awareness of what we do."

Still, factoring remains the primary source of financing for many apparel firms.Stanley Officina, president of Sterling Factors, for one, is concerned about the possibility of additional shakeout at retail. "I haven’t seen the return of pre-Sept. 11 shopping levels. Stores are reporting same-store sales, but they’re not up 20 percent to 30 percent, and certainly not at where they were before the terrorist attacks. Since no one was in the stores a year ago, what are these companies really reporting? I think that perception on the part of the American public is very important, and what we are dealing with is a fragile psyche."

Officina said that he’s lived through some awful cycles, including the shakeout among the discounters in the mid-Nineties when Bradlees, Caldor, Jamesway and Montgomery Ward all filed their Chapter 11 petitions. The good news for him is that the factoring business is particularly strong in not-so-good times.

"There’s strong demand for factoring in both good times for growth and credit protection and in bad times for survival. When times are difficult, companies need us because of concern over a customer’s credit. I think what you’ll see are retailers creating more and more pressures on manufacturers, such as having them carry more inventory in-house for months in advance of ship date, to extended payment terms, and greater support in the form of allowances and discounts. The ones most pressured are middle-market firms, with those having annual volume of $15 million to $75 million hit the hardest."

Tim Moore, director of business development at Hilldun Corp., is expecting more business for factors as market conditions slow: "Retailers tend to pay their bills more slowly when sales decline, which make more vendors look to us for some support. They get nervous because their dollars are held up in inventory, either through returns or canceled orders."

He’s expecting credit to tighten over the next 12 months, particularly at the specialty store level. "We’re seeing a tightening up of credit right now, and if sales are really slow in December, credit will be harder to get."

Tom Slome, a bankruptcy attorney at Scarcella, Rosen & Slome, noted that while he’s seen an increase in business bankruptcies, he doesn’t expect a major uptick in filings until interest rates head up. "As soon as the rates change, you’ll see a flood of filings. The huge cases spin off a great deal of work and create a ripple effect."John Daly, president of CIT Commercial Services, observed: "We’re not acting any differently. We are actively checking customers. Because we are deeply imbedded in the industries we lend to, such as apparel, we understand the cycles well, so there are no wild credit swings. We generally do well in times of uncertainty."

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