Inventory and Equipment Loans to Supplement the Bank
Loans for inventory and equipment can be more challenging to structure. Banks and many other lenders consider inventory to be less liquid. For one thing, inventory is a less uniform asset (e.g., is a combination of raw materials, work in process and finished goods) and therefore less saleable should it need to be liquidated.
Equipment is tangible, but it ages and therefore requires specialized knowledge of its resale market. For these reasons, a senior lender may be limited in the extent that they can lend against a company’s inventory and equipment.
Structured Financing works with Banks to provide creative inventory and equipment financing solutions for small and mid-sized businesses that can fill in the gap or “top up” their existing bank loan facilities. Instead of replacing the senior lender, our specialty is to position loans that can be subordinated to the bank’s security, or alternatively, take priority security over assets that the Bank prefers not to lend against or is not suitable for their purposes.
Common Deal Killers - Inventory and Equipment Financing
• The advance rate does not provide sufficient coverage (i.e. borrowing base)
• Inventory composition not acceptable, salability
• Location and possession of goods
• Seasonality
• Age and type of equipment
• Liquidation value
Financing inventory and equipment can be beneficial for SMEs that are looking to move quickly on new opportunities and grow their business.
We can help you help your clients. Structured Financing can complement the Bank by engineering a solution that combines inventory and equipment into the borrowing base or as a term loan.
With the Bank’s line of credit facility and/or term loans remaining in place, the Bank can provide a waiver of their security over inventory and the specific equipment that the company wants to finance.
If structured as a subordinated loan, then the bank does not provide a waiver and release its first position on any security.
This type of financing can work for businesses in many industries.
Contact us to help you solve problems or address opportunities…
Many businesses require more capital. Beyond equipment and inventory financing there are a range of different options that we can structure to “stretch” existing bank facilities or fill in the gap.
Contact us to start a discussion about how we can support you.