Agriculture Tractor Sprayer Manufacturer - May 2018

W. Edwin Small

Location: Lubbock, Texas
Industry: Agriculture Tractor Sprayer Manufacturer
Revenue: $4 Million per year
Line of Credit: $1,000,000 Line of Credit
Collateral: Accounts Receivable, Work in Process, Inventory, Machinery & Equipment

The American Dream
Sterling Commercial Credit approved a $1,000,000 line of credit secured by Accounts Receivable, Inventory, and Equipment in November 2016. The initial funding included $200,000 in A/R, $100,000 Inventory, and $240,000 in equipment. The line of credit paid off a local lender ($500,000) and granted access to weekly cash flow and excess availability with a growth minded Entrepreneur.

Six months into the relationship the accounts receivable dropped below $100,000 and the company was unable to fill larger orders, due to trade vendors being owed money more than 61-days in age. The vendors were not releasing “new product” until old bills were paid creating a log jam and lack of production, lack of sales, and lack of generating accounts receivable. Further complicating the cash flow strain was the fact that the client began accepting large deposits and credit card payments that did not flow through Sterling Commercial Credit.

Sterling’s credit team reviewed the situation and identified the client was in trouble and began potential exit strategies. After several phone calls with the client it was clear they were short $100,000 to $200,000 from being able to produce their backlog and produce a high level of revenue returning the company to profitability.

Sterling’s CEO (W. Edwin Small) agreed to fly down to Lubbock, Texas with the Relationship Manager (Happy Sachs) to walk through the backlog reports and see if there were any alternative solutions that would assist the company. While on-site the CEO and RM walked the warehouse, and identified over $500,000 of work that was logged jammed waiting for parts from vendors who had moved them to COD (Cash on Delivery). The COD status created a production stoppage and without a solution the client would not be able to produce the backlog orders of $500,000.

Sterling amended their loan agreement to allow for WIP / Purchase Order funding, advancing on the work in process orders. Sterling immediately injected a fresh $250,000 dollars which was used to pay vendors and release products. The work in process / purchase order facility was a creative solution that made an immediate impact to this client. The new $250,000 came from a sales backlog of $9000,000 of potential A/R’s at an advance rate of 30% capped at $300,000. The key to the WIP / Purchase Order credit facility was the ability to convert each order in under 90-days. After 90-days the individual contract become ineligible under the collateral based formula.

Understanding the state of the client’s needs and finding a working capital solution is Sterling’s sweet spot. Sterling also immediately took 100% dominion of funds cash control over all deposits and incoming credit card payments to ensure the line of credit was being properly reduced with every transactional sale.

Below is a picture of the site visit with our Client in Lubbock, Texas and Sterling’s RM and CEO supporting and believing in just one AMERICAN DREAM STORY!

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Cheers,
W. Edwin Small