SME

How does a start-up business raise money against used trucks in a post Royal Commission environment?

The owner of a transport business passed away and the deceased estate could find no more a suitable buyer than the business’ general manager (GM).

The GM set up a new entity for the purpose of completing the acquisition. As such, it was deemed a “new business” and was the first deterrent for traditional lenders, despite the fact that cash flow forecasts demonstrated a capacity to service.

This month’s case study highlights a special situations case where a transport company was depleted of its cash resources after the directors invested in a pub.

The cash burn on the pub venture led to ATO arrears in the transport business, ultimately making it impossible to fund the business through traditional means.

Recently, a mining services business dealing with the wet & dry hire of equipment encountered setbacks in the mobilisation of large contracts, after the fleet had been largely either mothballed or retrenched. Despite the long-standing business being historically successful, recent financial data indicated a lack of serviceability – bringing the business to a standstill. The need for funding new equipment, re-certification of mothballed equipment and further working capital was apparent, with a total funding requirement estimated for $1M.

In December, Hermes was asked to fund a mining services business with a funding requirement of $6 million, comprising $4 million in term debt and $2 million in debtor finance, for a 12-month period over which time the business would be “turned around”. Hermes applies three key criteria when assessing a funding opportunity, as this month’s case study illustrates. The three criteria can be summed up in three words: wheelhouse, security and runway.

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.