Transaction
A distribution company was holding higher-priced inventory due to COVID supply-chain issues when its bank pulled the day-to-day facility. Shaffer Capital found alternative asset-based financing to pay out the line of credit and facilitate the ongoing concern of the company.
Published financing features
- High value attributed to accounts receivable and inventory
Published client benefits
- Ability to restructure
- Strong terms on inventory and AR
- No need to re-inject equity
- Competitive pricing
How this kind of financing works
An operating line at a chartered bank is normally a demand facility, which means it can be withdrawn on notice rather than at the end of a term. The trigger is rarely a missed payment. Far more often it is a margin calculation that has moved: the line is advanced against a percentage of receivables and inventory, so if the bank's view of those assets changes, availability falls even though the business itself is unchanged.
Asset-based financing approaches the same assets from the other direction. Instead of protecting a broad banking relationship, an asset-based lender underwrites the assets specifically and prices for them. Inventory a bank has decided to margin conservatively is the same inventory an asset-based facility may advance against at a higher rate.
Replacing a called facility is a refinancing, so the two lenders have to be sequenced: a payout figure and a date are agreed, and the incoming facility clears the outgoing one. Pricing is generally higher than the bank line it replaces. The comparison that matters is not the new rate against the old one, but the new rate against having no facility at all.
Historical example only. It is not a promise of terms, availability, or results for a future transaction.
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