CASE STUDY: Department of Defense Contractor Prepares to Fulfill Nine-Figure Contract with New Working Capital Partner

Estimated reading time: 3 minutes

Background

Credit facility limit:
$1,000,000

General description:

Outdoor gear including tents, gloves, and accessories

State of formation:

California

Customer type:

Department of Defense (DoD) support agency and DoD government contractors

Issue

This California-based manufacturing company provides outdoor gear to both Federal government agencies and sizable prime contractors. The company was recently awarded a nine-figure federal contract to be fulfilled over several years. While this contract award will substantially increase its current revenue and previous levels of production, it does create an increasing demand for working capital to support its operations. To accommodate this new contract, the company plans to expand its manufacturing capacity by transitioning from its current manufacturing facility to a stateside factory. In addition, it needed to upsize their line of credit and unfortunately, their current bank lender was unable to accommodate their request. As a result, they looked to secure both an Accounts Receivable Finance facility, as well as, a Purchase Order finance firm as financial partners to provide the necessary growth capital. This eventual partnership structure would replace its traditional bank line which was unable to accommodate the a large need for working capital collateralized by an increasing borrowing base.

Proposed Solutions

United Capital Funding (“UCF”) proposed an asset-based, accounts receivable financing facility; which delivered a highly flexible working capital structure that is sufficient and flexible enough to grow along with their current increasing demand. Through this form of financing, the company was able to:

1. Secure an adequate credit facility collateralized by their accounts receivable; then they could have otherwise achieve by leveraging their current balance sheet under their existing traditional revolving line of credit.
2. Increase liquidity to support incoming demand without raising dilutive equity capital.
3. Expand at an integral part of the company’s life cycle without restrictive covenants.
4. Decrease their overall Days Sales Outstanding by working with an institution that has been in business for 25 years supporting its customers with professional receivable management services.
5. Reduce senior management’s time and energy on cash flow management and therefore, allowing greater attention on growing revenues and ensuring customer satisfaction.