An established $14 million Service Company was becoming adversely affected by the Economic Downturn. Sales were decreasing and customers began to pay slower, hurting the Company's cash flow. A significant portion of the Company's customer base was from the Health Care Industry which historically pays its suppliers slow. The Economic Downturn has led this customer base to pay even slower. This in turn caused the Company to begin paying its suppliers late. The Company approached its current lender seeking to increase its Revolving Credit Line from $1,000,000 to $1,200,000. Instead of increasing the Company's Line of Credit, the Lender decreased the Company's Credit Facility to $900,000. This created additional problems for the Company.
While the Company had historically been in good standing with its suppliers, a few of its largest suppliers put the Company on credit hold, hampering its ability to generate product sales.
The Company approached a number of banks to increase its Line of Credit but was either turned down or told that additional collateral in the form of real estate was required.
While the Company had good historical earnings, it was highly leveraged with a Debt to Equity ratio in excess of 5 to 1.
The Company was introduced to Asset Enhancement Solutions, LLC ("AES") and retained AES to restore its credit facility to its previous level or higher.
Creative Financing Solution:
The Company was initiating new sources of revenue and implementing expense reductions but was unable to properly present this information to the prospective lenders it approached. AES prepared detailed monthly financial projections for the Company showing the results of the Company's initiatives and its effect on margin, profitability and leverage.
AES successfully arranged a Credit Facility of $2,000,000 with an aggressive lender that also included a $500,000 Sub-Limit for Capital Expenditures.
This Facility not only increased the Company's Revolving Line of Credit by 120%, the CapEx Facility also allowed the Company to complete a Sale-Leaseback on equipment previously purchased in cash during the past few years. The first tranche for Capital Expenditures was a Sale-Leaseback of $200,000 for equipment purchased in 2007, 2008 and early 2009. Capital Expenditures are financed via Term Loans priced at Prime plus 1.25% with an amortization period of 60 months.
The Revolver consisted of a monthly Borrowing Base predicated on accounts receivable. While most Lenders will advance funds on accounts receivable less than 90 days old, AES convinced the new Lender to advance funds on receivables from Health Care customers till they were 120 days old. As Health Care Customers represent the majority of the Company's accounts receivable, this had the effect of increasing the Company's borrowing availability. The rate of interest on the Revolver was Prime plus .75%.
This new Facility provided the Company with a significant increase in borrowing capacity that not only allowed it to bring vendors current but also provided the Company with the ability to take advantage of early payment discounts offered by its suppliers.
Neil Seiden, 516-767-0100
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