A service company financed by a small foreign bank was advised that the bank was exiting the commercial loan business and that it needed to find a new lender. The Company had a good relationship with this bank and had been with them since 2006. The Company was introduced to this lender in 2006 by Asset Enhancement Solutions, LLC after an exhaustive search due to the multiple issues the Company faced at the time.
The nature of the Company's business is such that a significant amount of its revenue is derived from New York City ("NYC") and NYC typically pays the Company between 150 to 300 days after the date of service. In 2006, Asset Enhancement Solutions had been able to negotiate special terms with this foreign bank that provided eligibility on accounts receivable from New York City up to 180 days from the invoice date.
In 2008, the Company's existing lender reduced the Company's credit facility from $1 million to $700,000 due to losses in 2007 and 2008. Although the Company had collateral to support more than $1 million in borrowing, the lender capped the Line at only $700,000. This decrease had the effect of restricting the Company's potential growth and profitability the past 3 years as the Company did not have the cash to employ people that would generate additional revenue which would not be collected for 180 to 360 days. The Company needed its lender to finance this gap in its revenue cycle.
The Company was fearful that it would not be able to find a new lender that could accommodate its special needs. The Company approached a number of banks on its own but was turned down by all.
Recognizing it needed help, the Company turned to Asset Enhancement Solutions, LLC for assistance.
Creative Financing Solution:
When Asset Enhancement Solutions, LLC ("AES") arranged financing for the Company in 2006 the transaction was very challenging due to the difficulty in finding a lender willing to provide availability for accounts receivable up to 180 days old. The vast majority of lenders exclude from eligible collateral, accounts receivable greater than 90 days old but on an exception base may go up to 120 days. Identifying a lender that allowed eligibility on accounts receivable up to 180 days from invoice date was crucial for the Company in 2006.
Today, the good news is that the Company has been profitable the last 3 years. The bad news is that today a significant portion of the Company's accounts receivable is now received between 180 to 360 days from the date of service. In presenting the Company, AES found lenders to be more focused on the bad news than the good news. Although lenders liked the Company, they were spooked by the fact that it took so long for the Company to get paid by New York City.
Fortunately, AES was successful in convincing a lender that although it took a long time, the Company was ultimately successful in collecting all of its receivables from NYC. The lender agreed to provide a $1,500,000 Line of Credit with eligibility for accounts receivable from NYC up to 360 days from the date of service.
This new $1.5 million Line of Credit increased the Company's borrowing capacity by 53% and also provided the Company with an additional 180 days of availability on its accounts receivable from NYC. The lender is prepared to increase the size of the credit facility as the Company performs and creates the eligible collateral to justify a higher facility.
This Line of Credit will provide the working capital necessary for the Company to grow and increase its profitability.
Neil Seiden, 516-767-0100
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