A consumer products company had pent up demand for its products due to COVID-19 and had $1,500,000 in pre-sold goods in Asia ready to ship pending payment to vendors. The Company was maxed out on its $1.5 million line of credit with a regional bank which was collateralized by accounts receivable and inventory. The Company asked the bank for an additional $1.5 million so that these goods could be shipped prior to an upcoming weeklong national holiday in Asia. These goods were for the Company's primary customer which represented 85% of its business. If these goods were not delivered timely, the Company faced significant penalties as well as the possibility of losing its largest customer which would lead to the demise of the Company.
The bank was unwilling to provide the Company with additional funds even though the Company had more than enough accounts receivable to collateralize this additional funding and despite these goods being pre-sold and very important to the Company as a going concern. The bank suggested one of their other divisions might be able to assist, but never introduced the Company to the appropriate people. The bank's relationship manager then introduced the Company to a factor that could provide additional liquidity, but the effective interest rate of the Factor's credit facility was 29%.The Company reached out to its CPA firm for assistance and the CPA firm introduced the Company to Asset Enhancement Solutions, LLC "AES" for assistance.
Asset Enhancement Solutions, LLC quickly got its hands around the situation as time was of the essence. AES suggested the Company utilize Purchase Order Financing which would be the quickest way to have these pre-sold goods released by the vendors. The Company set up a meeting with its bank and AES to discuss the usage of P.O. financing. The bank refused to allow the Company to utilize P.O. financing as it required the bank to sign an intercreditor agreement with the P.O. Financing lender and the bank claimed it did not like signing intercreditor agreements.
The Company was furious with its bank as these pre-sold goods needed to ship ASAP. AES provided the Company with two options. Option one was to quickly refinance the Company with a less expensive factor that could provide the additional liquidity, and then refinance the factor soon thereafter. Option two was for AES to arrange for a $1.5 million bridge loan that would take a security interest (UCC-1) in the assets of the Company behind its current bank lender.
The Company decided to go with the Bridge Loan as it was the least invasive alternative. Within 5 days of making this decision the Company received the $1.5 term loan and was able to pay its vendors so that they would release the goods it was holding at the Ports in Asia.
The Company was now interested in having AES replace its existing credit facility. AES worked closely with the Company and its CPA firm on detailed monthly projections to determine the appropriate amount of a new credit facility. The main challenge was finding a lender that was comfortable with an 85% concentration with one customer. AES provided the Company with a few options. We first explored a credit facility with a different bank, but the Company ultimately decided to move forward with a $4.5 credit facility with a finance company that offered them significant flexibility, no covenants and the ability to borrow in excess of the credit line when necessary. Like most businesses, the Company has gone through a lot during the past 16 months of COVID, although this lender is a little more expensive than a commercial bank the CEO can now sleep well knowing they have a lender that will be there for them when they need them the most.
To learn more about how we can assist you with your PPP loan, please contact
Neil Seiden, 516-767-0100
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