A manufacturer with annual revenue of $30 million was hit hard by the Covid-19 pandemic. They incurred a loss of $3 million in 2020 and a loss of $4 million in 2021 but hoped to break-even in 2022. These losses created significant cash flow problems causing a large increase in past due accounts payables. As a result, long-term vendor relationships were deteriorating and the Company was worried about its ability to purchase the raw materials it needed for production.
As the Company historically earned a healthy profit it had been able to operate without a line of credit in place. The Company had accounts receivable, inventory and unencumbered manufacturing equipment. However, the Company had significant negative net worth of $10 million. The Company was also patiently waiting to receive an Employee Retention Tax Credit (“ERC”) of $1 million from the IRS. The Company learned that it might have to wait an additional 6 months to receive the ERC from the IRS so this credit could not provide the immediate cash flow that the Company needed to satisfy its vendors.
The Company was clearly not bankable and was referred to Asset Enhancement Solutions, LLC by one of its trusted advisors for assistance.
Creative Financing Solution:
The Company was initially interested in either borrowing against or selling its ERC with some unique programs that AES was involved with but determined that it would not provide the Company with enough funds. As the Company had a significant amount of unencumbered equipment, it was interested in borrowing against this equipment. Although the Company had significant losses, AES was successful in receiving term sheets from a few stand-alone equipment lenders. However, AES suggested that a line of credit whereby the Company would borrow against its accounts receivable and inventory would provide the Company with more favorable terms. AES also noted that this type of lender could also advance funds against equipment at more favorable terms than a stand-alone equipment lender.
AES presented the Company with 3 different financing options and the Company chose to move forward with the line of credit which was able to close in less than 30 days after the Company signed the term sheet. This line of credit provided the Company with the funds that were urgently needed to reduce its past due accounts payable and repair relationships with its vendors.
Neil Seiden, 516-767-0100
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