Financing an Obligation Instead of an Asset
Most financing buys something. Occasionally a healthy business owes a fixed sum on a fixed date with nothing new to show for it, and that is the financing conventional lenders are least comfortable with.
Equipment produces output. Inventory becomes receivables. An acquisition brings earnings. Underwriting is built around that logic, and the first question on most credit memos is what the money is being used for.
Then there are obligations. An earnout maturing. A tax assessment. A settlement. A judgment. A departing shareholder with a date in the agreement. The money leaves and nothing arrives, which makes the usual question unanswerable and sends most borrowers to the wrong conversations first.
A manufacturer with 90 days
Take an illustrative case. A specialty food and beverage manufacturer runs $26 million of revenue and $2.8 million of EBITDA. Three years ago it bought a smaller co-packer, and the earnout from that deal is now fixed and due: $4.0 million in 90 days.
The business is performing. It has $1.2 million of cash, $3.1 million of receivables, $2.6 million of inventory, equipment appraised at $5.5 million in an orderly liquidation, $5.6 million of existing debt, and a bank that has been supportive for a decade.
Paying from operating cash is not available. After interest, taxes and maintenance capital spending, the business generates about $1.2 million a year. Covering the balance from cash flow takes more than two years, and the obligation is due in three months.
Five routes, same balance sheet
The useful reframe is that the purpose does not change what the business owns. What changes is which assets are unencumbered, what each source advances against them, and how fast each one closes.
The incumbent bank, revolver increase: $800,000. The relationship is good and the answer is still small, because the increase is sized on borrowing base headroom rather than on the need.
An asset-based refinance: $3.4 million gross, about $1.4 million of new money. Eighty-five percent of eligible receivables plus fifty percent of inventory, less the $2.0 million already drawn on the revolver it replaces.
A cash-flow term loan: $2.8 million. Three times EBITDA less the $5.6 million already owed. Enough to matter, not enough to pay the obligation, and the slowest of the five to close.
Structured junior capital: $4.0 million. Sized on the enterprise rather than on any specific asset, priced accordingly, and usually the fastest of the larger options.
An equipment sale-leaseback: $4.1 million. Seventy-five percent of the $5.5 million liquidation appraisal, against machines that keep running exactly as they are.
Time is the real constraint
Two of those five produce enough, and both of them close inside the deadline. That is not a coincidence. When an obligation has a date, speed moves from a convenience to a term of the deal, and the cheapest quote that closes in twelve weeks is worth nothing against a ninety-day clock.
The second constraint is paperwork rather than collateral. The equipment in this example is paid off, but the incumbent bank holds a blanket lien over all assets. The machines are unencumbered in substance and encumbered on paper, and releasing them takes a conversation with a credit officer who was not expecting one. Starting that conversation in week one rather than week six is often the difference between the two routes that work and the three that do not.
What makes an obligation fundable
Lenders who do this work regularly look at four things, and none of them is the purpose.
Is the obligation fixed and documented? A stated amount on a stated date underwrites. A contingent or disputed figure does not, and should be settled or quantified first.
Does the business service the debt afterwards? The payment is one-time. The financing is not. A $4.0 million facility over five years adds roughly $1.0 million a year of debt service to a business generating $1.2 million of free cash flow, which is the real test and the reason some of these should be partly paid down rather than fully financed.
What is genuinely available as collateral? Not what appears unencumbered on the balance sheet, but what can be released, appraised and pledged inside the window.
What happens if it is not paid? Default interest on a tax assessment, acceleration in a purchase agreement, enforcement by a departing shareholder. The consequence sets the urgency, and a borrower who can state it precisely gets taken more seriously than one who cannot.
Negotiate the obligation before financing it
The step that gets skipped is the cheapest one. Obligations are often more flexible than they look.
Tax authorities have installment arrangements. Settlements can be restructured into scheduled payments, frequently at a discount for certainty. Earnout holders and departing shareholders usually prefer a negotiated schedule to an enforcement action, particularly where the alternative puts their own payment at risk.
A business that walks in having already converted a single $4.0 million date into two payments of $2.0 million needs a smaller facility, on better terms, from more sources. That conversation costs nothing and takes a week.
How Thalos Capital Approaches This
Thalos Capital works borrower-side on special situations across the United States: structured credit and bespoke liquidity for complex, non-standard and deadline-driven situations.
A fixed obligation with a date is a structuring problem rather than a credit story. The work is mapping what the balance sheet will actually support, which sources will advance against it at the speed the date requires, what has to be released by the incumbent lender and when that conversation starts, and whether the obligation itself can be reshaped before anything is borrowed.
The manufacturer in the example spent its first six weeks asking its bank for the whole $4.0 million, which was never the facility that lender writes. It had the collateral the entire time, in the wrong conversation.
Most financing situations have more options than the borrower initially sees. A conversation is enough to map them. Submit your financing request at https://thaloscapital.com/contact.