$250,000 to replenish Working Capital & Refinance Extended Payables
August 1, 2016
Problem: Management was caught in the cross-fire of losing a major account in a depressed economy and being unable to delay strategic investments in new production capacity. The quick fix was driving up credit balances and stretching the trade, but a more permanent solution was required.
Response: Key operating initiatives included diversifying the customer base and implementing new costing/pricing procedures to increase gross profits. Interim results showed the early stages of a turnaround to sustainable profitability; however, the primary bank was unable to increase its exposure due to the Company's poor financial performance the previous fiscal year.
Solution: The bank's existing debt remained in place, and we provided a $250,000 junior SBA term loan to provide cash liquidity ($120,000) and pay off past-due accounts payable ($130,000).
Epilog: Operations stabilized with improved cash flow, restoring satisfactory debt service coverage. The balance sheet has been strengthened by successive years of earnings retention, debt reduction and improved liquidity.