► 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)
- 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
- 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.