Capital raising in a post Royal Commission world
News Flash
Hermes Capital specialises in providing asset-based funding to SMEs and mid-market companies in special situations. Special situations are those where the normal credit criteria don’t apply.
Hermes is an investment fund – not a bank, and so has the flexibility to structure the right deal, for the right amount, and at the right time to give your clients the decisive fire power they need to achieve their goals.
Hermes provides funding from $500,000 to $10M for problem-solving working capital – comprising debtor finance and, where appropriate, adjunct term loan facilities secured by equipment and/or property, as evidenced by the case below.
A “Special” Transitional Case
How does a start-up business raise money against “second-hand” trucks in a post Royal Commission environment?
A finance broker was faced with this very scenario after the owner of a transport business passed away and the deceased estate could find no more suitable buyer than the business’ general manager (GM). They settled on a price that was fair – essentially reflecting a sale of the vehicles at fair market value.
The GM was paying off a family home but was otherwise not asset backed. The trucks and trailers that came with the business were valued by a reputable valuer and on paper represented good security.
He had some savings with which to fund working capital – all he needed was the funding to acquire the business.
The gap in the market for commercial finance
The GM set up a new entity for the purposes of completing the acquisition. As such, it was deemed a “new business” and was the first deterrent for the traditional lenders the finance broker had approached. This was despite the prepared cash flow forecasts demonstrating a capacity to service – particularly when supported by historical figures.
The fact the vehicles were “second-hand” and being sold privately compounded the issues. It became clear to the finance broker that traditional equipment finance would not be a solution for the business.
The broker worked with the buyer and the estate selling the business to find a solution: the GM would put the cash he had set aside for working capital towards the purchase, while the estate agreed to contribute with vendor finance.
This left a requirement for the balance of the purchase as well as funding for working capital.
Asset-Based Lending Solution
The broker approached Hermes Capital to map out a solution. As a non-bank lender, Hermes is not restricted by the usual constraints nor the new imposts following the Royal Commission.
Hermes was able to structure a two-part solution: a term loan facility to complete the purchase of the business, and a debtor finance facility to provide working capital.
Outcome
Following the settlement, the transaction was completed to the satisfaction of both parties. Short-term working capital requirements such as wages and fuel were met, with new contracts being won on a weekly basis.