Hermes Capital provides a range of unique asset based lending solutions for SME’s to help manage cash flow and assist with growth.
Under our invoice finance facilities, Hermes provides working capital by buying a business’s unpaid customer invoices (debtors) for immediate cash. One of the major benefits of invoice finance is that transactions can be completed for companies within traditionally problematic industry sectors who are in “special situations”.
This month’s case study demonstrates how Hermes was able to fund a client operating in the renewables sector to take advantage of a business opportunity that had arisen.
A “Special” Transitional Case
Those who have worked on a transaction in the “renewables” space can appreciate the stigma associated the sector. Couple this with a past business venture gone wrong (at no fault of the director), and you would find yourself in the challenging position one commercial finance broker found himself in: trying to place a facility for his client.
The client had grown from genuine start-up to 100 staff in under 18 months. Over the past year, the company had been involved in around 35% of all installation nationwide in their specific area. Barriers to entry are high, meaning there was a limited panel of contractors operating in their space; even smaller when narrowed to companies with mechanical and electrical expertise.
Historically, the company had been completely funded from retained earnings. But working off a 3-way cash flow forecast (completed by the company accountant), the director noted the importance of partnering with a financier that could grow with the business.
The business had enough funds for current works, but understood that a relative increase in COGS as the business grew while overheads remained comparatively low, would cause trouble with cashflow that required Hermes’ assistance.
The gap in the market for commercial finance
The broker identified the working capital cycle is dependent on when projects begin or end. With varying lengths from 5–12 months, this issue would remain or even intensify.
As this client was not heavily asset backed by way of hard collateral, their bank was hesitant to assist.
Whilst some financiers may blacklist specific sectors or industries, Hermes always takes a commercial view on each transaction presented.
Asset-Based Lending Solution
The broker put a strong case for the client that, whilst the company does play in a speculative sector, there were three conclusions where the business:
- Had strong financial literacy and reporting history
- Had a proven track record in their industry sector and provided a broader offering than competitors
- Has demonstrated profitability to service debt
The client was provided a funding limit of $1.5M against their current outstanding accounts receivables. This enabled the company to meet short-term cash requirements such as payroll, but also provided the added confidence of secure funding lines when quoting on future projects.
The business has successfully transferred to our online portal and has continued their steep growth trajectory.
Since funding the Invoice Finance Facility, the client has approached Hermes for the purchase of 10 work vehicles under our Capital Maximiser product. Monthly repayments on the term loan facility worked out cheaper than leasing the vehicles, with outright ownership within 2 years.