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Financing – Capital for Operations and Growth

financingFINANCING – CAPITAL FOR OPERATIONS & GROWTH

Financing is the fuel that empowers business. Global advises, assists and invests in funding start-ups as well as young or established small to medium-sized businesses.

Whether you are a new solopreneur starting a home-based business; an inventor with a unique
technology; an entrepreneurial team launching a new venture project; an early-stage enterprise in need of credit facilities to finance operations, production and order fulfillment; or a small to medium-sized business either in growth mode (needing equity or a new credit line to make acquisitions, market a new product, or to expand your facilities and operations), or a company in trouble (pre-Chapter 11, or in Chapter 11, [Debtor-In-Possession]) with a need to refinance and restructure, Global can help.

We can finance capital requirements from as little as $5,000 to as much as $500 million.

We provide our clients with either debt or equity, either alone, or in combination, as the circumstances warrant.  We will entertain lump sum payments, credit lines, ongoing facilities, and progress payments.  We can even provide immediate cash in exchange for legal settlements, annuities owed to you or court judgments.

Our scope is international.

We also structure and arrange asset-based financing, discounting, leases and sale/leaseback transactions, as well as uncollateralized business loans in those cases where a well-established history of payments and profitability exists.

Our financial accommodations can be secured by various types of collateral, including, but not limited to: purchase orders, accounts receivable (domestic or international, corporate or governmental), individual invoices, inventory, warehouse receipts, equipment, rolling stock, real estate and a variety of financial instruments (such as stocks, bonds, annuities, structured settlements, certificates of deposit, standby letters of credit and the like).

Our resources are virtually limitless, and our principals have extensive experience with virtually every type of financing transaction.  We are endlessly creative, and our principal passion is to solve problems and find solutions so that we can make our clients’ deals happen.

At Global, our role may be that of advisor, investor, lender, broker, consultant or syndicator – whichever is most appropriate in the client’s special circumstances. A brief outline of some popular types of non-bank financing follows, just for your general information:

Accredited Angel Investors

Generally speaking, Angel Investors are wealthy individuals who invest in companies that are in their earliest stages, usually with unproven technology, but with interesting plans. Many Angel Investors are as interested in the societal, humanitarian, educational or other non-financial aspects of the business or other organization in which they are participating. On occasion, an investor making a small investment in a start-up or early-stage enterprise will do so in exchange for some “Founder” status or for general public relations purposes – this tends to be the case when the amount at stake is very small, or when a number of investors informally “syndicate” an investment to bootstrap a company. Angel Investors are often difficult to qualify, approach or to convince, although they have direct decision making authority and generally provide financing in amounts from $50K to $10 million. Generally speaking, beware the “Angel Investor” who is acting as a syndicator of several investors’ funds (as well as his or her own) for your project. The terms of financing vary dramatically from deal to deal.

Venture Capital

Venture Capitalists are either individuals or entities capable of financing start-up or young companies requiring investments from $10 million up to several hundred million dollars. They look for tremendous growth potential, unique intellectual property, and a pre-planned exit strategy to recover their investment, either through a buyout by a major company (at a multiple of their original investment), a public offering, or some other means of getting a return of capital plus a significant gain within 1 – 3 years. They tend to take a large equity stake in the company and invariably get involved in corporate management and Board governance. They can also charge some very significant due diligence, document preparation, legal and commitment fees at the inception of a transaction. They usually look for rapid gains in a select few types of investments. Of late, VC firms have been most actively engaged in financing companies with: high-tech products, unique intellectual property, or an established application or brand which has already achieved a following in the marketplace.

Factoring And Accounts Receivable-Based Credit Facilities

If your company sells to a diverse customer base and offers these customers extended payment terms, it will generate accounts receivable as sales (and the earnings process) are completed. This portfolio of receivables can be pledged to a Factor, who will advance a percentage or their collectible value to your company in either a line of credit or in a series of advances. In some cases, the factor will merely be extending you credit; in the majority of the cases today, the factor will actually purchase your receivables at a discount of their full value, notify your customers to pay the Factor directly, and the Factor will ultimately give you some discounted portion (net of its fees and interest charges) of the proceeds when the customer remits to the factor. In most factoring arrangements, the factor may either hold back a reserve against potential losses; they might also have recourse to your company (and/or its principal owners) for any losses or shortfalls. They do not generally require any equity, and while their discount fees may cut deeply into your margins, they are a source of operating and growth capital to facilitate increasing revenues.

Invoice Discounting

If your company is relatively new and sells to only a small number of customers, or perhaps is dependent upon a few major clients for most of its income, Some companies will actually discount individual invoices (i.e., receivables) and advance you anywhere from 50% to 80% of the total amount of those invoices, notify your customer of the arrangement, collect from your customers, and will remit to you a portion of the face amount of the invoices, after deduction of their discount fees and interest. These firms are generally more expensive than larger factoring firms, but they are prepared to be more flexible in terms of structuring terms and more liberal in terms of whom they are prepare to do business with.

Leasing

If your enterprise requires the use of capital equipment, rather than spending a large sum of money to purchase it outright, the vendor may either introduce you to its own leasing subsidiary or to a leasing company with which it has an affiliation; the leasing company (the lessor) puts up the money to buy the equipment and lets your company (the lessee) have the use of the equipment in exchange for monthly payments which are similar to rent. The difference is that at the end of the lease term (usually anywhere from 3 to 10 years, depending upon the price tag and anticipated longevity or useful life of the asset) you will have an option to purchase the asset for some pre-arranged price (i.e., either a nominal amount, a percentage of the asset’s value – usually 5% to 15% of the original purchase cost – or at the equipment’s Fair Market Value at the time of the lease expiration. Note that unlike a rental arrangement, you are obligated, upon the execution of the lease, to make all of the monthly payments. In this manner a capital lease is very similar to an installment financing of an asset. When you make your final payment, your company usually will get legal title to the equipment, although sometimes legal title is actually conveyed at the beginning of the least term to afford the lessee the tax advantages associated with the depreciation of the equipment. While this is generally less expensive than factoring, it does not directly provide your company with an infusion of operating capital – it simply eases your cash flow burden while allowing you to pay the asset off over a reasonable period of time. The obvious advantage – you have the full income-producing use of the asset during the entire term of the lease arrangement. Titled ownership is not necessary when you can have a leasing arrangement which gives you possession and full utilization of the asset.

Purchase Order (PO) Financing

New companies and even more-established companies with large, confirmed purchase orders from creditworthy buyers often need the capital to pay their suppliers (to obtain goods for re-sale, by way of example) before they can fulfill these purchase orders and turn them into either receivables, or a paid orders. By way of example, If I own a small company which has obtained a large confirmed purchase order from an established company (anywhere worldwide) for $1.0 million, and my company requires $500K to buy the supplies to complete the order, a purchase order financing house will either “pre-factor” my “pre- receivable” and advance the funds to my suppliers; when the purchase order financier has received payment from my customer, that financier will pay my company its gross profit on the transaction (the difference between $1.0 million and $500K, reduced by a discount fee and interest on the advance made to my supplier. This can be done in cases where my supplier is demanding immediate payment or a letter of credit, even when my customer has not supported its purchase order with a letter of credit (i.e., “back-to-back” letters of credit). This financing is more expensive than individual invoice factoring, but it allows a relatively small company which is thinly-financed to sell to any creditworthy customer almost anywhere in the world. No equity is generally sacrificed to the PO Financier.

Credit Insurance And Payment Guarantees

In situations where your company is selling to an overseas firm (export) with which it has not done business, and where the overseas firm has not issued a letter of credit (in fact, they are often asking you to give them 30- , 60-, or 90-day payment terms!), certain companies will issue either your company, your lender, your factor or your lessor a third-party guarantee of payment in full of your order (i.e., of your customer’s payment in full) within a certain period of time after it has either been shipped or after it has been delivered to your customer pursuant to the terms of the purchase order instrument. These guarantees are indispensable in building up an international market for your products.

They are actually part of a U.S. trade export initiative, and many of these credit guarantees virtually eliminate all of the speculation, on the part of your company, in shipping product worldwide. In certain cases, these credit guarantees are also applicable to major development projects where progress payments or installment payments will be made at intervals over a specified period of time or will be subject to release upon completion of certain project “phases.” Many of these guarantees are provided through banks or other “traditional” financial institutions, but the vast majority of them are sponsored or supported by governmental agencies both in the U.S. and abroad. It should be noted that these guarantees come with a substantial price tag (i.e., like an insurance premium), they will generally reduce your cost of borrowing; in some cases, they can make seemingly “unfinanceable possibilities” into fully – capitalized projects or completed transactions.

Asset-based lines of credit are generally secured by pledges of your company’s more substantial assets which are not already encumbered – usually such items as trucks, heavy machinery, real estate (if your company or a partnership comprised of your company’s principals owns it), inventory and accounts receivable, either alone or in some combination. These lines are generally secured by a senior lien against your company, are more expensive than a simple bank loan, but are ideal for companies that are turning around, rapidly growing, have thin profit margins or do not have several consecutive years of documented profitability. These capital facilities are usually provided by finance companies which do not suffer the same stringent lending constraints as primary banking institutions. While these facilities are more expensive than bank loans, lines or revolving credit facilities, they tend to be less expensive than factoring or single invoice discounting arrangements, and on par with or less expensive than leases.

Project Financing

Project Financing is a sometimes complex affair, especially when it involves: multiple vendors, a foreign government agency or an overseas customer (as purchaser or lessee) and a completion period of several years. These financings usually involve a combination of credit guarantees or letters of credit, a multi-phased loan to be funded in installments based upon percentage completion or some other specified payout formula, and other “wrinkles.” In some cases, we can help a smaller firm to secure a larger, more bondable (creditworthy) partner to strengthen the perceived viability of the transaction, or we can assist the firm to coordinate the right combination of funding and guaranteeing parties.

We are not an investment banker, securities broker-dealer, bank, fiduciary agency, insurance company, surety or a financial advisor, but it is our function to 1) find you the optimal route to the financing that you need, and to 2) specifically bring you together with the right party or parties to accommodate you.

Global Edge can advise and assist you concerning various aspects of your company’s business plan preparation, editing and presentation. All that you need to do is contact us, and we’ll be at your service. If you are either a startup or an existing business and you would like a high-quality business plan template with detailed instructions, just scroll down to the end of this section and you’ll find downloadable forms for your use.