FxM on Working Capital Financing in the wake of the loss of SVB

FxM was started to provide supply chain financing and payment management solutions across the digital media supply chain.?Given the loss of SVB, and as companies re-think their financing relationships, we thought it worthwhile to do offer our insight into what’s?next for financing and working capital management.??

The implosion of SVB has put the dangers of relying on one partner for financing in the spotlight.?Most companies will quickly solve the problem of concentrating uninsured deposits in single banks by spreading deposits across multiple, "too big to fail” banks. Other products, such as working capital lines, will need to be sourced, again, through multiple vendors, and can be a lengthy process.???

In terms of what to expect, we believe that Boards will insist that firms diversify their banking services; they are going to want redundancy.?This note discusses two major sources of working capital available to firms, Asset-Based Loans and Accounts Receivables Financing.?

?Asset-Based Loans?

The first, Asset-Based Loans (ABL), are available from banks.?Asset-Based loans are often used by businesses that don’t?qualify for traditional loans.?An ABL requires?collateral and can be collateralized by either physical assets or high-quality Accounts Receivables.?While ABL’s are common, they typically have restrictive loan covenants.?For example:?

?· Financial covenants: Require the borrower to maintain?financial metrics, such as debt-to-equity or current ratio.?

·??Reporting covenants: Require borrower to provide?regular financial reports to the lender, including income statements, balance sheets, and cash flow statements.?

·??Operating covenants: Require the borrower to maintain?certain operating standards, such as maintaining?a certain level of insurance coverage or limiting capital expenditures without prior approval.?

·??Negative covenants: Restrict the borrower from taking certain actions, such as incurring additional?debt, making significant investments, or paying dividends to shareholders.?

·??Positive covenants: Require the borrower to take certain actions, such as maintaining?certain levels of working capital or insurance coverage.?

·??Default covenants: Specify the circumstances and consequences under which the borrower will be in default of?the loan agreement, such as missing a payment or breaching any of the other covenants.?

?Accounts Receivables Financing?

A second source of working capital is Accounts Receivable Financing (ACF), or factoring, where a business uses its outstanding customer invoices (Accounts Receivable) as collateral to secure a loan or line of credit from a lender. The lender advances a percentage of the value of outstanding invoices (usually between 70% to 90%) to the business in exchange for the right to collect on those invoices. Once the customer pays the invoice, the lender deducts their fees and loan amount with the balance sent to the business.?

Accounts Receivables Financing tends to be less restrictive and more flexible than ABLs.?A typical arrangement will assess the quality of the credit of the businesses customers and may offer different percentage “holdbacks” based on customer’s, not the businesses, credit quality.???There are also, typically, financial and reporting covenants, though less restrictive than those required by ABL lenders.?Note that Accounts Receivables financing can be either secured, with the borrower putting up additional?collateral to cover any unpaid invoices in return for lower fees, or unsecured, leading to higher fees.?

?Contact us?for more information

For most businesses dealing with the aftermath of SVB, we recommend adding in?an off-balance?sheet, unsecured AR financing facility as the process tends to be relatively fast, and then to setting up an ABL with a bank.

FxM is one additional?source of working capital, providing?specialized approaches to Receivables Financing designed for digital media. FXMs solutions address?long-standing media industry pain points including sequential liability, mis-matched payment terms, multiple financings, and complex payment reconciliation. Importantly, our solutions are operationally seamless, work within your existing processes and platforms, are lightweight and easy to execute.?

?Please give us a call or drop us an email, and we would be happy to have a more in-depth?discussion about AR Financing as well as other methods to manage your working capital.?

[email protected], 404-405-2592?

[email protected], 917-902-0797?