Debt financing for the five 10 percent of print and graphics communications companies that are growing is not overly difficult to obtain in the current climate (summer, 2012). Banks, leasing companies, and asset-based lenders all have their doors open for good borrowers. This means that owners are "doing it themselves" without outside assistance from consultants.
When the owners of an NAPL client sought our input on their proposed financing last week, it occurred to me that some of these points may be relevant to other NAPL member-clients. The following eight points are only applicable to "healthy" companies seeking financing to support customer growth; they are not applicable to "turnaround" situations or for cases in which equity capital would be the preferred financing vehicle.
NAPL's advice (no names, of course):
"Overall, it sounds like you are on the right track with financing. Please note the following points:
- I'm glad to hear that the line of credit would finance AR growth, not funding operating losses;
- Consider alternatives to bank financing such as enticements for customers to pre-pay;
- Another alternative is to use the paper company suppliers as a bank without interest or collateral or guarantees (the paper guys usually will help fund growth, especially if they see a viable sales plan and reasonably sound financial statements);
- Be sure to avoid paying the trade TOO QUICKLY because then if you NEED to slow down, it's harder because the change in days outstanding is what they measure and you end up penalized even if the overall time is still okay, it's the CHANGE that they consider;
- I can't see how you would not personally guarantee the bank financing, but not to worry because the debt should be collateralized by assets including AR so that your actual personal risk is rather low;
- Be sure that the bank files a UCC against assets, we want them SECURED in first position, do NOT accept a bank deal involving PG but no collateral;
- You may want to monitor your own company's AR like a bank would do if the line was larger, as they'd put you into Asset Based Lending, which involves calculating your eligible AR and forming a borrowing base to support funding (this goes beyond my e mail today, but the topic of ABL, as it's called, should ring a bell if and when appropriate to look into);
- I would suggest NOT using your line of credit bank for equipment financing, generally speaking, as you probably would find equipment lenders more aggressive in underwriting
Homework assignment: why is point 6 ABSOLUTELY critical in every case?