With the worst credit crisis upon us since the Great Depression, institutional lenders have significantly reduced their LTV/LTC’s on loan transactions. This has translated into requirements for increased equity contributions and pressure for seller financing in the M&A arena. The traditional view is that most businesses only utilize accounts receivable factoring to make payroll and pay vendors in a cash crunch, eg. when they reach the limits of their LOC. The picture is actually much broader and especially if a borrower is creative. Factoring companies help close business acquisitions where significant A/R can be financed off balance sheet by converting qualified receivables into immediate liquidity/cash for use in:
• Leveraged mergers and acquisitions
• Turnaround/restructuring situations
• Liquidity events for family-held businesses
• Growth opportunity financing
• Capital expenditure financing
• Restricted working capital and/or LOC ceilings
• Seasonal or cyclical companies
• Specialized industries
• Stock repurchase
• Debtor-in-possession (DIP)/confirmation financing