When the Bank Says No – The landscape of lending, especially as to asset-based funding, continually changes. There are lenders that are affected by varying degrees, some well-capitalized and always active in financing businesses.  These lenders often use Business Valuations to determine interest, size and rate parameters.

You should seek:

  • Speed and flexibility
  • Aggressive lending with few (if any) trip wire loan covenants.
  • High growth and acquisition loans.
  • Bank exits.

 Case 1 example

 Maturity: One Year

Line of Credit: $5,000,000 (typical size)

Advance rate:

  • Accounts receivable: Up to 85% of eligible accounts less than 90 days from invoice date Subject to a 10% “taint” rule. Progress payments may be excluded from borrowing base
  • Inventory: Up to 50% of eligible inventory A line cap of the lesser of 50% of accounts receivable loan or $$750,000 -may be set
  • Equipment loan: Up to $250M based on 65% of liquidation valuation of equipment, 5-year amortization
  • Cash Surrender value of life insurance: Up to a $275,000 loan based on 95% advance rate

 Rate: 90 day LIBOR rate (now 1.25%; last year 3.07%) plus 6%, with a LIBOR floor of 2.0%.

 Points: 4% of line – Added to loan balance on closing-amortized over 90 days Loan

 Processing Fee: 0.50% payable monthly

 Under Utilization Fee: 0.25% of unused portion of Line of Credit payable monthly

 Guarantee(s):  At minimum validity guarantees as determined by HQ

 Non Refundable Audit Fee: Typically $10,000 initial; then quarterly audit fee of $1,000 per day plus expenses thereafter

 Prepayment penalty: 3%

 Other conditions: Typically have a limit on salary/dividends, minimum net worth, minimum income or cash flow, require audited financial statements or such.

Case 2 example:

Maturity: One to Two Years

 Line of Credit: $500,000 to $5,000,000

 Advance rate:

  • Accounts receivable: Up to 80% of eligible accounts less than 90 days from invoice date.  Progress payments will be excluded from borrowing base. Inventory: Up to 50% of eligible inventory.  A line cap of 30% to 50% of accounts receivable loan.  Outstandings under the accounts receivable loan must be at least $500,000 before Celtic will advance against inventory.
  • Equipment loan: Up to $1,000,000 based on 70% of liquidation valuation of equipment, 3 to 5-year amortization

 Rate: Three Month LIBOR (currently 1.19%) rate plus 5.00 to 6.00%, with a LIBOR floor.

 Points: 1-2% of line charged at the first advance.

 Monthly Administrative Fee: 0.31% to 0.47% charged monthly.

Guarantee(s): Any individual owning 20% or more will be asked for a personal guarantee.  Exceptions are granted on a case-by-case basis.

Non Refundable Audit Fee: Typically $5,000 to $15,000 for the initial; then quarterly audit fees of $850 per day plus expenses.

Prepayment penalty: The greater of the monthly minimum interest or actual average minimum interest times the number of months remaining in the commitment.  Typically the company may refinance with a 60 day out to a bank.

 Other conditions: No lock-box required; no financial covenants.