Wholesale Distributor Refinances Debt with Accounts Receivables and Inventory Financing

Background

An entrepreneur's wholesale perfume distribution business experiences an annual growth rate of 50 percent. The company's accounts receivables are around $500,000, and inventory is valued at $1 million. The entrepreneur has a term loan for $250,000 from a lending institution at an interest rate of 12 percent. The loan includes a blanket lien.

For the best supply deal arrangements the business owner must pay upon receipt of the goods. Also, at all times the entrepreneur needs to carry enough inventory for about 30 to 60 days.

The Need

The small business owner wanted $1 million to refinance, expand the product line and service high volume orders from department stores like Macy's and Bloomingdales. With the working capital, the entrepreneur could import perfumes in bulk and conduct business with bigger groups that have longer payment cycles of 60 to 90 days. Accessing working capital would increase profit margins by 3 to 5 percent.

Small Business Loan Solution

Biz2Credit reviewed the business and personal financials of the entrepreneur and recommended taking a line of credit against the business account receivables and inventory. After surveying various lending options, Biz2Credit narrowed the selection down to two lending institutions. Although, the lenders offered an interest rate of prime, Biz2Credit challenged them to come up with better terms, since the entrepreneur would open an account with the bank servicing the debt. The lenders reduced the interest rate to prime minus 0.5 and offered lower cash management fees than the entrepreneur's current bank.

Results

• Replaced high cost term loan with a secured line of credit for $500,000
• Lowered cash management fees by 2 percent

Benefits

• Interest payment savings of 450 basis points by refinancing
• Additional working capital to service larger contracts
• Higher projected annual growth rate of 100 percent
• Greater staying power to counteract long payment cycles from bigger retailers
• Ability to take advantage of bulk purchasing discounts
• Increased bargaining power and market penetration as a high volume buyer