Posted on: November 18th, 2021
Questions from bankers are omnipresent and unrelenting. Why did your profit go down, why did your profit go up, why is your gross profit sideways? Bankers are exceedingly probing these days and have grown increasingly so since the major bank regulation changes 10 years ago. Most companies accept this level of scrutiny as banker’s doing their job to evaluate the creditworthiness of the prospect.
Where the process becomes counter productive is when a Banker expects the company to know the answer to everything and attributes a level of macro foreknowledge to the company that does not exist. Over the past two years, companies have been dealt one of the hardest hands of cards to play in the history of the US. The economy shut down and many companies had little no demand for their product or services. This was the mother of all extraordinary events, so momentous that its impact should be self-evident to any banker. And yet, most companies still subject themselves to the gauntlet of banker’s questions only to find that they are not worthy of a bank loan. There is a better way for middle market companies, and it comes in the form of a Non-bank Receivables Loan Facility.
Most companies had a down year in 2020 or 2021, or at a minimum had hard to explain gyrations in their quarterly results. Many companies had losses in 2020, particularly in the second quarter and again in the fourth quarter when the second covid wave hit. Companies stretched their vendors and were stretched by the customers, creating tension in their working capital. None of this is particularly surprising given the sweep of the pandemic’s impact. And this is where the value of a non-bank receivables-based loan facility comes into play. These lenders do not care about any of these things but the value of the receivables and the creditworthiness of your customers.
Receivable-based lenders do not get into historical financial minutiae. They are making a loan against one asset class, accounts receivable. They do not count on the profit increases to repay their loan, but the continual collection of receivables. They understand the performance hardship these companies have faced and have designed their loan structure to mitigate its effect. Best of all, this type of receivables-based loan facility has no covenants so the company is not at risk of default should its profit recovery take longer. This type of facility is the perfect antidote for pandemic battered balance sheets, due to its relaxed underwriting approach and its supportive, pro-borrower engagement style.