Last week, the financial press reported action being taken by the government to help SMEs better access capital and manage their cash flow. Highlights according to The Australian include forcing large corporations to adhere to 30-day terms and a $2 billion fund to be loaned to SMEs.
In our case study this week, we demonstrate how Hermes Capital is ahead of the news cycle with cash flow solutions available that specifically address freeing up cash tied up in accounts receivable.
Hermes Capital provides solutions to the working capital constraints that businesses face when they are trying to grow, re-structure, re-align or refinance.
We provide funds from $500,000 to $10 million, and for our debtor finance clients have the unique capacity to provide term loans secured by equipment and or property.
The capital Hermes provides comes with the right structure, in the right quantity and at the right time to give our clients the decisive fire power they need to achieve their goals, as highlighted by the case below.
A successful transport and logistics business had the opportunity to expand by leasing a new warehouse to add to its existing capacity.
The landlord of the new warehouse required a bond of $200,000. Whilst the client was profitable, cash flow otherwise available had been used predominantly to fund growth – including a growing debtor’s ledger.
With the emergence of a tighter credit market, the client was not able to obtain assistance from its bank – prompting them to seek the help of their finance broker.
The gap in the market for commercial finance
Despite the business’ potential, its historical financials were not supportive of an increase in facilities. It would be a challenge for the bank at the best of times, but in the current financial climate, the client would have become another anecdote of banks erring on the side of caution in the post Royal Commission environment.
This leaves a large gap in the market for a common-sense approach to financial analysis, particularly where a client has the assets to support funding requirements.
At Hermes, we have a team with extensive SME and asset-based lending experience that can provide real solutions – not just the band-aid solutions fin-techs provide.
Other debtor financiers did not have the capability to lend against the property, which was essential in this case, deeming the “Capital Maximiser” a unique solution with optimal results.
Asset-Based Lending Solution
As the business was expanding, their funding requirements included both the bond, as well as working capital to fund the business as sales increased to fill the new warehouse – an overall requirement of $600,000.
With a debtor’s ledger of $500,000 and equity in the director’s home, it was sufficient to support a term loan facility.
Taking these into consideration, Hermes was able to structure a combined debtor finance facility for the client – the “Capital Maximiser”. The facility worked to fund the business’ working capital needs and was driven by the debtor’s ledger – as well as a term loan facility supported by a second mortgage over the director’s home.
The client’s financials reflected a rapidly growing business. On the current “run rate”, it easily had serviceability.
The client has moved into its new premises and is taking on a number of 3PL contracts that will fill the new warehouse space, and grow business revenue steadily. Better yet, the business owner now has no need to lose sleep over funding nightmares!