Case Study: Challenges of finance following a significant restructure
Industry: Equipment Supplier
Business Stage: Restructuring
How the challenges of a business restructuring were overcome to set the stage for a $1.5 million capital raise for an enterprising venture on the precipice of unprecedented growth.
A specialist equipment finance broker, known as “Bill” for this case study, had a loyal client, a struggling business, that had recently faced significant challenges. Before the COVID-19 pandemic, this client had been a reliable source of business for Bill, showing strong growth potential and frequently requiring financing for new equipment.
The Pandemic’s Impact
However, the COVID-19 pandemic dealt a severe blow to the business. Most of its customers were “brick-and-mortar” retailers, and sales plummeted during the pandemic. Moreover, the owner’s reluctance to reduce staff exacerbated the financial strain, as high wage expenses persisted alongside declining sales.
A Bold Decision: Voluntary Administration
Faced with these challenges, the business had to make a pivotal decision. It chose to undergo formal restructuring by entering voluntary administration, hoping for a fresh start. Emerging from this process, the business entered into a Deed of Company Arrangement (DoCA). To sweeten the deal for creditors and secure their approval, the business made a substantial upfront payment to the creditors’ deed fund. This payment was funded through a short-term loan, which carried punitive terms and security claims over all business assets, including the owner’s property.
The Capital Raising Journey
The business soon needed additional capital to support its expansion. Once again, it turned to Bill for equipment finance. Despite presenting reasonable explanations for their insolvency and a promising set of financial projections for the restructured business, traditional funding sources proved unattainable.
Not One – Three Critical Funding Needs
Bill scrutinized the business closely and realized that his client faced not one, but three pressing funding requirements. Firstly, there was an urgent need for financing to purchase new equipment. Secondly, securing working capital for the business’s growth was essential, and thirdly, the burdensome short-term loan needed to be refinanced.
In his mission to assist his client, Bill sought the support of a trusted ally – Hermes Capital. He knew that while Hermes Capital wasn’t a bank, it was a reputable credit fund renowned for delivering on its promises. Bill and Hermes collaborated closely to structure a funding solution that would address all of the business’s pressing needs.
A Tailored Solution
Together, they devised a two-pronged solution. The first part involved a term loan of $700,000, serving both as a refinancing tool for the short-term lender and as the capital needed to purchase new equipment. The second part was an invoice finance facility, offering an additional $800,000 to fuel the business’s future growth.
The Asset Based Finance Solution
To secure this financing, they strategically leveraged the business’s assets, including its debtors, the equipment designated for purchase, and a second mortgage on the business owner’s property.
The capital raise proved to be a resounding success. The proposed financing settled successfully, enabling the client to acquire their new equipment promptly. This newfound capital empowerment opened doors to fresh revenue opportunities, fostering the business’s growth and prosperity once more. The previously obstructive short-term lender was settled, allowing the business owner to redirect their energy toward pursuing further opportunities, free from the entanglements of a battle for survival.