Borrower Advisory

84 insights · page 2 of 11

Two proportional circles of the buyer's cash at closing on the same $18 million acquisition with the same $3 million seller note. With the note on full standby it is $4.2 million. With the note paying current interest and principal it is $7.2 million, a difference of $3 million.

The Seller Note Counts as Equity, or as Debt. The Terms Decide.

On an $18 million acquisition, the same $3 million seller note moves the buyer's cash at closing from $4.2 million to $7.2 million, depending on whether it is on full standby. SBA rules for the same question changed on October 1.

Financing Strategy Borrower Advisory

Two stacked bars of available liquidity. The annual biller holds $4.5 million of cash and is offered a $2.5 million facility, $7.0 million in total, of which $5.0 million is service already paid for and still owed. The monthly biller holds $1.2 million of cash and is offered $4.8 million, $6.0 million in total, of which $400,000 is owed.

Annual Billing Made You Cash-Rich. It Also Halved Your Facility.

Two software companies have identical ARR and retention. One bills annually in advance and holds $4.5 million of cash. The other bills monthly. The monthly biller is offered $4.8 million of debt against the annual biller's $2.5 million.

Financing Strategy Borrower Advisory

A 90-day timeline from work performed to cash received at an engineering firm, split into five stages: 15 days to month-end billing, 8 days of internal invoice preparation, 10 days of client review, 45 days of payment terms and 12 days of lateness. Thirty-one of the 90 days are marked as recoverable by the firm itself.

Ninety Days From Work to Cash. Thirty-One of Them Are Yours.

An engineering firm waits 90 days between doing the work and being paid for it. Thirty-one of those days come from its own billing process, worth about $1.02 million of cash. The other 59 days are a real financing need.

Financing Strategy Borrower Advisory

Three columns of cash available to a commercial printer. A sale-leaseback of owned presses raises $2.70 million, an equipment-secured refinance raises $2.16 million, and a loan sized on last year's earnings raises $600,000, against equipment appraised at $3.6 million.

The Presses Are Paid Off. The Business Is Short of Cash.

A commercial printer owns $3.6 million of appraised equipment and can borrow $600,000 on last year's earnings. A sale-leaseback on the same presses raises $2.7 million, at $69,800 a month and $650,000 of total cost.

Financing Strategy Borrower Advisory

A two-point comparison of what it costs to raise $6.1 million against a $30 million family manufacturer. Selling a 31 percent stake under a deadline gives up $9.38 million of business value. Financing the same amount over five years costs $1.68 million of interest.

The Estate Tax Is Due in Nine Months. The Estate Is the Business.

A family owes $7.6 million of estate tax nine months after the founder's death, with $1.5 million of cash and a $30 million manufacturer. Selling a stake under the deadline gives up $9.4 million of value. Financing costs $1.68 million.

Financing Strategy Borrower Advisory

Five add-back categories in a grid, each with the amount claimed in the sale memorandum and the amount a lender accepts. Owner compensation, $350,000 claimed and $260,000 accepted. A legal settlement, $150,000 and $50,000. Pro forma fuel savings, $250,000 and nothing. Owner personal expenses, $120,000 and $40,000. Deferred maintenance, $80,000 and nothing. $950,000 claimed, $350,000 accepted.

Your $4 Million of EBITDA Is $3.4 Million to the Lender

A trucking company is marketed at $4.0 million of adjusted EBITDA. The lender accepts $3.4 million, which cuts the debt available by $1.8 million and raises the equity the buyer has to write by the same amount, after the price is agreed.

Financing Strategy Borrower Advisory

A grid of 100 squares, each worth $100,000 of a software company's $10 million ARR. Seventy squares are other customers and count toward borrowing. Thirty belong to the largest customer: twenty count and ten, the excess above a 20 percent concentration cap, do not.

Your Biggest Customer Grew. Your Borrowing Capacity Did Not.

A $10 million ARR software company adds $2 million of new ARR. From its largest customer, that lifts borrowing capacity by $240,000. From two new customers, the same ARR lifts it by $1.44 million, six times as much.

Financing Strategy Borrower Advisory

Proportional circles showing a borrowing base of $8.30 million at closing and $6.88 million after the first field exam, with four smaller circles for the adjustments between them: $765,000 of pre-billed invoices, $240,000 of rent reserve, $213,000 from excess dilution and $200,000 of demo units.

The Borrowing Base Shrank After the First Field Exam

A $60 million hardware reseller closed an asset-based line on an $8.30 million borrowing base. The first field exam tested the same collateral and found $6.88 million, and planned headroom of $1.80 million fell to $382,000.

Financing Strategy Borrower Advisory

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