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Financing Challenge:
A $50 million service company/contractor servicing the New York City Metropolitan Area real estate community required additional working capital to support its growth. As the local economy and real estate industry rebounded from the 2008 financial crisis, demand for the Company's services increased significantly. Although revenue increased, the Company's gross profit margin declined due to various challenges in one of its divisions. The Company was adversely affected by increased insurance costs, an increase in DSO (Days Sales Outstanding) from 50 to 69 days and the results of a sales tax audit which required the Company to pay New York State approximately $400,000. This drain on cash flow and earnings made it very difficult for the Company to pay its vendors on a timely basis. The $2.1 million (39%) of accounts payable that were over 90 days was creating various problems for the Company.

The Company approached a number of commercial banks on its own, but the highest credit facility offered was only $2 million. These lenders were uncomfortable with the Company's high leverage which was at a Debt to Equity ratio of 7 to 1 and were spooked by the Company's sales tax issue. However, the Company required a significantly larger credit facility to clean-up its past due accounts payable and accommodate its growth.

The Company's CPA firm introduced the Company to Asset Enhancement Solutions, LLC ("AES") for assistance in the hope that AES would be able to arrange a much larger credit facility for the Company.

Financing Solution:
One of the biggest challenges facing Asset Enhancement Solutions, LLC ("AES") was that the vast majority of lenders do not lend to contractors that service the real estate industry. Lenders view this industry unfavorably due to the complexities with respect to billing, dependence on general contractors who must get paid prior to paying their subcontractors and a variety of other reasons.

AES performed extensive due diligence and analysis so that despite the Company's shortcomings it could be presented in the best manner possible.

The Company had collateral in the form of accounts receivable, but different categories of accounts receivable that made it very challenging for any lender. The Company had accounts receivable that included Progress Billings of $1.4 million (17% of accounts receivable), Retainage of $2.3 million (28% of accounts receivable) and Past Dues over 90 days of $1.9 million (23% of accounts receivable).

AES successfully received LOI's from a few lenders that were interested in providing financing to the Company. This gave the Company several options and allowed AES to tailor a solution that best fit the Company's needs. The Company moved forward with the lender that provided both the greatest availability and the lowest effective interest rate. The Company received advances on its accounts receivable as follows: 80% of Final Billings, 80% of Billed Retainage and 60% of Progress Billings. The interest rate was at Prime plus 75 basis points. AES was able to arrange a credit facility for $4 million which was twice the amount the Company was able to accomplish on its own.

This financing provided the Company with working capital to finance its growth and funds to pay-down past due vendors.

Contact
Neil Seiden, 516-767-0100
neil.seiden@assetenhancement.com

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