Case Study: Attempt to Finance Inventory of Reusable Food Packaging is Hindered by Collateral Shortfall

While the bank would not lend the company money because of the low collateral value of inventory, Business Development Company decided to proceed with an unsecured $250,000 term loan.

Background

The company designs and manufactures reusable food containers to reduce the use of disposal take-out containers by college, healthcare, military and industrial food service programs. The containers were being manufactured in Asia. Long lead times and aggressive payment terms created a large inventory funding requirement; however, the company’s primary bank lender was only willing to finance accounts receivable.

Our Solution

Although the bank would not lend the company money because of the low collateral value of inventory, Business Development Company decided to proceed with an unsecured $250,000 term loan. Business Development Company’s decision to provide funding was based on a favorable assessment of the company’s management team, financial strength, and industry conditions. Management maintained its relationship with the primary bank lender, and The Business Development Company accepted a junior collateral position behind the bank.

Results

The Company has met its growth forecasts and, along the way, reduced its inventory financing needs by building the tooling needed to support domestic manufacturing and thereby reduce order lead times.