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Stock financing, revolving credit facility secured for a client in tricky circumstances

30th June 2023
CORPORATE FINANCE ASSOCIATE

Jack Dowling

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Stock financing, revolving credit facility secured for a client in tricky circumstances
Jack Dowling
CORPORATE FINANCE ASSOCIATE

Jack Dowling

Key Facts

Client: Business owner 

Requirement: Debt facility for stock purchase

Challenges: Loss-making business, weak PG position, liquidation in the background

Facility: Revolving Credit for Supplier-Side Payments

Recently, Enness was approached by a business owner within the online retail space. The business’ profitability was being hampered by external factors – supply chain issues consequent of the broader economic climate had resulted in a decrease in profit margins, whilst recent expansions to the businesses operations had resulted in a weighty increase in fixed costs, such as warehousing, marketing, and staffing. They were therefore looking for a debt solution to assist in navigating across the profitability threshold. 

With profit margins lower than before, the single biggest factor restricting profitability was simply the volume of stock that the business has access to at any one time. With on-hand cash limited by the recent expansion, and income from previous transactions taking up to a week to enter the business's bank account, certain high-ticket and high-profit margin products were often listed as out of stock on their website – meaning missed sales opportunities. Other times, the business had missed out on opportunities to purchase large numbers of stock at a reduced rate – these were one-time, circumstantial and exclusive offers from suppliers that the business could significantly benefit from being able to take advantage of. Other challenges facing the client included an ongoing liquidation for a second unrelated business, a relatively weak personal guarantee position and a large outstanding unsecured debt, cannibalising the business's already limited cash flow.

Initially, the client had enquired about a traditional business loan - term debt with fixed repayment over several years. Enness were able to leverage our expertise to take a step back from the request, understand the business and its processes and find a more suitable solution. We secured the client a revolving credit facility for supplier-side payments of £300,000. This afforded the business the cash-on-hand to purchase as much stock as required in order to surpass its fixed costs, whilst remaining agile enough to pivot towards new opportunities without worrying about gaps in their inventory. With interest payable only on the utilised funds, the client remained in control of their profit margin, maximising the facility's efficiency and usage. Finally, we were able to refinance the existing debt with the same lender by securing the client an interest-only facility, with the option of bullet payments at set intervals.

Enness work with a wide network of relationship-driven lenders, who seek to understand the narrative behind the numbers to ultimately enable a business to reach its goals via the most proficient means.

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