Do You Need Debt Financing?
Need More Capital to Grow or Run your Business? You've Come to the Right Place!
Tough Deals Require Tough Solutions
We can arrange Senior and Sub Debt financing from $100,000 to $50 million for companies that cannot obtain adequate bank financing through an other sources. Our New York Investment banking connections has over 15 years experience funding special situations like yours.
The old joke goes; 'You can get as much money as you need from a bank as long as you can prove you don't need it'. Otherwise, you may need our services. Our New York based financial consulting affiliate specializes in providing alternative financing for non-bankable companies throughout the United States.
Functioning as a national clearinghouse, we represent hundreds of non-traditional money sources that are specifically geared to fund troubled or growing companies. These money sources are generally non-bank lenders that provide financing to companies who cannot obtain adequate capital to grow or run their business. The principals have worked on hundreds of difficult cases over a 15-year period (including Chapter 11 situations as well as developmental stage companies needing debt financing) involving hundreds of millions of dollars in financing.
Closing Time Line
Loan Broker Versus Direct Lender
Due Diligence Fees Explained
Purchase Order Financing
Debt versus Equity
Secured Debt Financing
Unsecured Debt Financing
Completion Fees for Successful Funding
Lending Package Processing Forms
Any company that is unable to secure financing through traditional sources, particularly if funding needs are immediate. Some examples are, developmental stage companies, companies with historical and/or current losses, companies with negative net worth or tax liens, companies in Chapter 11, healthy companies that need a more aggressive lender who will provide a larger credit facility, and companies where the principals have poor credit.
Helping Banks To Help Themselves
Banks receive their funds from depositors like you and me and therefore have a mandate not to take undue risks with those monies they lend out.
Our Affiliates represents several hundred non-bank lenders throughout the U.S. that get their funds, not from deposits but rather from the sale of notes and bonds on Wall Street and elsewhere. They are, therefore, able to take more risk and provide financing for tougher deals that do not qualify for bank financing. This includes companies that are in Chapter 11, that have losses or a negative net worth or that may have a tax lien.
When the bank has a commercial borrower that is in violation of their loan covenants and is put into ‘workout’ we can assist that bank by providing a replacement lender that will take them out. Loan size can range from as little as $100,000 up to well in excess of $50,000,000. Collateral can consist of any or all of the following: accounts receivable, inventory, equipment or real estate. Bridge loans can often be arranged and closed in as little as two weeks.
Additionally, when the bank turns down a commercial loan applicant based on poor credit or too short a time in business we may also be able to arrange for one of our lenders to provide the needed financing until such time as that account becomes ‘bankable’. In the meantime, the bank keeps the checking account and builds goodwill with the customer. New funding based on sound analysis not guesswork. Typical funding types include:
- Revolving credit lines
- Secured bridge financing
- Purchase order financing
- Acquisition financing
- Inventory loans
- DIP and Exit financing
- Cash flow loans
- Real estate financing
- Loan guarantees
- International real estate
- Conventional factoring
- Asset based loans
- Letter of credit financing
- Funding for healthcare providers
- Equipment financing
- Equity participation
- Construction loans
- Unsecured loans based on personal credit of principal
- Mezzanine financing
- SBA loans
Time Line to Closing
Prime rate to prime plus 6% on most debt financing transactions.
1% per month and higher on discount factoring
1% per month and higher on purchase order financing
Prime rate to prime plus 8% on real estate transactions
Bridge loans completed within one week to three weeks
Most other transactions 30 to 90 days
$50,000 and up typical transactions range from $500,000 up to $300,000,000
Retainers versus Lenders Due Diligence Deposits and Commitment Fees
A direct lender can only offer a very specific financing that may or may not be the best available for that specific transaction. By best available we mean the most capital at the lowest interest rate with the least onerous collateral requirements.
Keep in mind that because we are not a direct lender but rather a clearinghouse for hundreds of different lenders we offer a great advantage to the commercial borrower.
Depending on the geographic location, size of loan, credit profile of both the borrowing entity as well as the credit profile of the principal, the industry type and finally the type and mix of collateral available (if any) we may be able to offer a variety of financing solutions.
If the borrower can find a direct lender on their own to provide the same transaction that we are offering and without having to pay our fee as a broker then clearly they should go for it. However, if the proposal we offer (including our small brokers fee for arranging the loan) is the best deal on the table then the course they should pursue is likewise clear.
The first issue is to determine is whether the borrower requires debt or equity. Debt would be a loan and equity an investment. Equity is always more expensive than debt and yet in certain instances the client may desire equity simply because there is no debt service to cover or pay back required.
Therefore it may provide less pressure for the client but, again, in the final analysis he will pay more for equity. As previously discussed, debt comes in two forms and two forms only: secured or unsecured. A secured loan is one that has collateral against which the lender will file a UCC-1 lien to perfect a security interest in that collateral.
Collateral is typically accounts receivable, inventory, equipment or real estate or some combination thereof. Some lenders can lend on intangible assets such as patents, trademarks and proprietary technology etc. provided that the lender is satisfied prior to making the loan that the collateral is marketable in the event of default.
An unsecured loan can be made in small amounts (from $10,000 to $100,000) based on the good personal credit of the principal or in larger amounts (generally starting at $500,000) based on the ability to cover the monthly debt service as attested to by the last three years of accountant prepared financial statements.
Some lenders just provide loans in certain cities or within a 100-mile radius of that city while others provide loans just in one state and still others will loan regionally or nationally. Others will make loans both nationally as well as internationally.
Some lenders will not lend to certain industries such as contractors or healthcare providers while others specialize in these or other areas.
Some lenders will make loans from $5,000 to $100,000 while others lend from $50,000,000 to $500,000,000. And then there are dozens who might be in the $3,000,000 to $25,000,000 arena and others from $300,000 to $3,000,000 etc.
Some will lend to companies in Chapter 11 and others only to profitable companies. Some will not lend into a Chapter 11 case but can still make a loan to a troubled company with losses and a negative net worth. Some require decent personal credit on the part of the principal others do not.
Some will only provide secured loans against accounts receivable (this would include factoring of accounts receivable), some will just do inventory loans, some equipment loans and then some will just provide real estate loans. Within any of these categories there are many refinements such as in accounts receivable financing where one could look at accounts that are billed with 60 or 90 day terms as opposed to accounts billed with 30 day terms or progress billed receivable versus non progress billed receivable etc.
Some lenders will lend against combinations (that vary widely) of collateral types such as accounts receivable and inventory versus equipment and real estate. Some require that 50% or more of the total facility size be against accounts receivable while others may allow a lower percentage of the facility to be AR driven. Straight equipment loans can be done as well as straight real estate loans, however stand-alone inventory loans are very difficult unless accompanied by excellent credit of the borrowing entity.
We represent hundreds of lenders across the country and all, without exception will require the borrower to cover the costs of due diligence prior to loan closing. The only exception to this rule is a local bank ( if the business is bankable ) who typically will not need such a deposit.
If lenders were to pay the due diligence costs they would doubtless waste a lot of money traveling to borrowers company's and performing appraisals and audits on situations where the borrower knows full well that there are, and have been, problems with the company that has caused other lenders to previously turn down their financing requests.
If the lender were willing to pay for the examination and investigation necessary to close the loan, borrowers who do have problems might not disclose them in hopes that by some chance the new lender would not look so closely or discover these issues that may have previously caused the loan to be rejected.
The lender will not require their due diligence deposit until they have issued their formal proposal outlining the specific terms and conditions that will apply based on the representations made by the borrower to them.
The purpose of the due diligence is essentially to allow the lender to confirm that the representations made by the borrower are true and correct so that they can write the check to close. Lenders due diligence may include a site inspection at your company focusing on your back office operations relative to the performance of your accounts receivable. Particularly they will want to examine the exact service or product provided, how you bill, to whom you are billing, the net collectable amount paid to you after allowances and deductions, any potential offsets due other parties or issues that could lead to offsets and the historical performance of your AR's collect ability.
Clearly, as the lender is typically expert in such matters you can benefit from such expertise as it relates to the efficient billing of your accounts and the ability to diminish underpayments etc. Real Estate, equipment and inventory appraisals that are more than 6 months old will likely need to be updated or in some cases may need to be redone.
The lender will also be concerned with the character of the borrower (both from a company perspective as well as from the principals perspective) as it relates to previous issues of fraud or bankruptcy etc. They will also need to clearly confirm the viability of the company going forward and any legal issues that might cause them to suffer a loss with respect to the loan to be consummated. This could include the possible inability of the lender to obtain a first lien against the collateral or the borrowers inability to cover debt service etc.
The lender is available to explain in detail what could cause them not to close the loan so that there are no surprises once you have agreed to their terms and conditions and before you pay for the due diligence. Most lenders make the deposit refundable minus specific expenses in the unlikely event that they are unable to conclude the loan.
Due diligence deposits vary widely from lender to lender but are generally in the $2,500 to $25,000 range. A loan transaction of $10,000,000 or more might require a due diligence deposit of greater than $25,000.
Once the due diligence is complete the lender will typically issue their commitment to fund at which time the borrower will be required the borrower to post a commitment fee (if the borrower walks away from the deal prior to closing they will forfeit this fee) which will generally be approximately 1 point on the loan amount.
Some lenders will go straight to closing after completion of due diligence and will not require a commitment fee. Normally, once the commitment fee is paid the only steps to be taken prior to funding would be the negotiation and execution of closing documents
Purchase order financing enables a new company without collateral to receive funding against orders that they are unable to fulfill due to lack of capital. The PO finance company will provide funding specifically earmarked to pay for labor and material costs associated with the purchase order in question. This funding does not, however, pay for other incidental costs to run the business such as rent, etc.
Other groups represented by our affiliate can provide combinations of debt and equity to enable a startup or troubled company, that has insufficient collateral or historical cash flows to qualify for a more conventional secured or unsecured loan, to obtain needed financing. Additionally, we represent hundreds of equity and venture sources who may provide straight equity if required in order to enable a deal to be completed. This sometimes comes in handy if there is a shortfall from the debt side to complete an acquisition.
In conclusion it is clear that a borrower dealing with Venture Planning Associates essentially has a one stop shopping opportunity where we can analyze a company and their financing needs and then secure the best financing available based on pricing, maximum loan amount and with the least onerous requirements. We can only provide the best proposal available, given our universe of funding sources and will always suggest that if the borrower can find a better deal they should take it.
In the world of commercial finance there are only two types of funds available, debt or equity. Equity financing involves investors who invest money into a company and in return get some percentage ownership of the company. The exact amount of ownership would typically be a function of how much they are investing versus how much the company is worth at the time of investment.
Debt financing, on the other hand, involves a lender who loans money to a company and receives a predetermined interest rate paid by the borrower as well as having the principal (the original amount of the loan) paid back over time.
Investors don’t lend money and lenders don’t invest money. Investors invest and lenders lend.
We are primarily involved with debt financing even though occasionally we may be able to help with equity or some form of a hybrid facility involving guarantees that include a combination of debt and equity.
With straight equity requests we do work with a group that has a particular interest in investing in companies that have some form of patented technology.
With straight debt financing there are essentially two categories, secured and unsecured.
Secured financing involves loans being made against specific collateral of the borrowing company. The four major categories of collateral are accounts receivable (monies due from the borrowers commercial customers for services already rendered or goods already sold and delivered against which the advance is generally around 80% of non-disputed less than 90 day old accounts), inventory (lenders typically advance 50% against either the cost of raw and finished goods inventory, excluding work in process or 50% against the liquidation value of same), equipment (most secured lenders will advance anywhere from 50 to 80% against the liquidation value of marketable machinery and equipment), and real estate (most secured lenders will advance anywhere from 50% to 80% against the current value of commercial real estate depending on varying factors).
When a secured loan is made the lender will ‘perfect’ their interest in the collateral by filing a UCC-1 lien through the Secretary of State in the state in which the borrowers collateral is located. This Uniform
Commercial Code legal filing enables the lender to have to enjoy specific rights against the collateral and the borrower in the event of default on the loan. If the collateral to be borrowed against already has liens against it the new lender may be able to lend more (a higher advance rate than the previous lender) and pay off the existing lien and substitute their own UCC-1 lien. Only one lender can be in first position with all the rights that infers. Occasionally on certain types of collateral a lender will make a loan as a junior lender (taking a second position behind the Senior Secured lender who holds the first lien position).
This is sometimes referred to as a mezzanine position or sub debt (subordinate to the senior or first lien holder. When this occurs the junior or mezzanine will always get a higher interest rate (often double the cost of senior debt) because obviously there is more risk. In the event of default on the loan when the collateral is liquidated the senior lender is paid first and then the junior or sub debt lender is paid. If the collateral value comes up short, the junior lender may not get all of the principal and thus, the higher cost to the borrower associated with the higher risk.
Besides the lenders concern over collateral, which is paramount in any secured loan, next comes their concern over the borrower’s ability to cover the monthly payments. Most conventional lenders will require the borrower to demonstrate through an examination of historical performance the ability to cover the debt service on a new loan. It is not enough to show forward ability but rather the borrower must demonstrate historical performance. There are a couple of exceptions to this rule but even there the lender will have a higher interest rate because of the possible risk that the borrowers projections will not actually work out.
The other type of debt is unsecured also known as junior debt or sub debt, mezzanine debt or subordinated debt.
As earlier discussed this type of debt could be a second position behind the first lien holder but more often is totally unsecured and based on some multiple of historical net income or EBIDTA (earnings before interest expense, depreciation, income taxes and amortization). For example if a company has net income (the amount of money made after all expenses and taxes are paid) of $2,000,000 then they might qualify for an $8,000,000 cash flow loan which would be 4 times net income.
To qualify for a cash flow or mezzanine loan the borrower must have at least review quality financial statements. There are three types of accountant prepared financial statements 1] compiled which are the least desirable from a lenders standpoint as they are simply a compilation of the numbers given to the accountant by the borrower, 2] reviewed where the accountant performs certain tests to verify the accuracy of the numbers presented and 3] audited statements where full due diligence is performed verifying the accuracy of the statements.
A financial statement is comprised of two parts, the balance sheet and the income statement also known as a profit and loss statement or P&L statement. The balance sheet lists the company’s assets and liabilities, as of a certain date and shows whether the company has a positive or negative net worth (the difference between asset value and offsetting liabilities).
A company can have a positive net worth, meaning if the assets where to be liquidated and the liabilities paid off there would be money left over and still have what is known a a liquidity problem. That is to say the company is not liquid (has money problems) because their current assets (cash and accounts receivable for example) are less than there current liabilities (current bank debt and accounts payable as example).
The income and expense statement demonstrates whether the company has made or lost money over a period of time up to a certain date. If the expenses are more than the income, there is a loss or vice a versa. Sometimes a company that has a loss can still qualify for a loan if we look at the amount of payments being made for example under interest expense and substitute a less expensive lender who will thus reduce that interest expense. We always must therefore carefully examine the P&L statement to determine the borrowers ability to cover debt service on a new loan.
In summary we are involved in securing loans otherwise known as debt financing and of the two types of debt we are most often involved with secured loans using the collateral of troubled or developmental stage companies. When asked whether we can make a particular type of loan for a particular type of company the subject always needs to be directed back to the basics of collateral and cash flow. Simply put the borrower either has collateral to secure the loan (again assets already pledged as collateral can in many cases be refinanced to provide a larger amount of financing) or if not historical cash flow or net income performance over a period of at least two years to qualify for a cash flow loan.
In some instances we may be able to provide an unsecured loan based on the principals or a co guarantors personal credit score. This mechanism can work but only if the borrowing company is in business a minimum of one year.
We can also provide purchase order financing for certain companies which involves providing money through a purchase order finance company specifically earmarked to pay for labor or material costs associated with a specific purchase order. A purchase order is an order from a customer for goods or services. Let’s say a company has an order from Macy’s for 10,000 dresses but does not have the money to pay for the labor and material to fill the order. The purchase order finance company will provide the needed funds subject to a review of the request and due diligence performed on the borrowing entity.
Venture Planning through its New York affiliate represents over 500 lenders nationwide as agent or correspondent. We review the particulars of any new funding request by focusing on the borrower's geographic location, loan size, industry type, collateral mix, historical cash flows, credit profile etc. in order to identify lenders who can fulfill the specific funding requirements of the borrower.
We will then develop and send a written synopsis of the transaction to specific lenders we have identified and further speak with them to select the most likely candidate who can provide the best overall proposal. Our mandate and obligation is to obtain the best financing available for our client. We earn a closing fee only when the client has accepted the financing we have arranged.
Cash Flow Loans
Did you know that we provide up to $100,000 in financing to small retailers and restaurants (any company that takes Visa and MasterCard) if they have monthly credit card sales? The amount of financing is tied to the average amount of credit card sales through Visa and MasterCard. This can make a small deal work when there is no collateral.
We can also provide for up to $100,000 in unsecured financing for companies of any size that have been in business for a minimum of one year and whose principal (or a co-guarantor) has a FICO score of 680 or higher. A FICO score is simply a measure of a person’s credit (how they pay their bills and what kind of credit history they have established).
Small Business Acquisitions
We can provide for up to 90% financing on small acquisitions (generally up to around $2,000,000) if the buyer has good credit and the company he is buying has decent historical profits. This can be done through an SBA guarantee.
We can provide equipment financing for start-up companies or companies with poor credit ($100,000 minimum outside of California) provided that the borrower has real estate (either personal or commercial) against which a 2nd mortgage can be placed.
Loans Against Stock Holdings
We have sources that will make loans against publicly traded stock provided that the stock has sufficient value (usually over $2.00 per share) and adequate daily trading volume (usually 25,000 trades per day). Loan to value is typically in the 30 to 50% range and can be arranged even against restricted or 144 stock under certain conditions.
We are providing the borrower with a specific lender who can offer financing to the borrower based on the lenders review of the representations made by the borrower with respect to loan size, geography, credit profile type and mix of collateral etc. The retainer paid to us by the borrower is not a deposit to be used for due diligence but rather an engagement fee to be credited against our closing fee.
We require this retainer essentially to protect ourselves against situations where our borrower has inadvertently misrepresented the value of collateral or the cash flows to cover debt service or perhaps in a case where the lender finds they cannot perfect a security interest in the collateral being offered or the borrower cannot provide the necessary documentation that the lender requires.
Because we do not require any exclusivity with respect to our fee agreement, the retainer also protects us in the event that the borrower obtains financing elsewhere, secures an equity infusion, or simply decides that they do not require the financing at this time. If the loan ultimately does not close for any reason, other that our inability to produce a capable lender, then the retainer covers our time, effort and expense regarding the work done by us.
We earn a success fee at closing of 1% to 3% of the funded amount, determined primarily by the loan size but also depending on the type of transaction and other factors. The initial work that we perform on any new account is always at our expense and involves an internal review and analysis of your transaction followed by further review with the specific lender we have selected.
The lender is selected on the basis of your company's industry type, geographic location, loan size, credit profile, type and mix of collateral etc. The lender must express a defined interest in providing a proposal based on the representations that have been made by you, the borrower. We require a modest retainer that will be credited against our closing fee but only after you have received and accepted our proposal with specific terms and conditions outlining the new credit facility.
We work on a non-exclusive basis and you may choose to accept other financing or pursue other available options.
Need More Capital to Grow or Run your Business --- You've Come to the Right Place.
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