financing options for government contractors - … · financing options for government contractors...

National HUBZone Conference October 2015

hubzonecouncil.org 1

Financing Options for Government Contractors

2015 National HUBZone Conference

Dave Bann – Streetshares

Matt Stavish – Republic Capital Access

Chad Ludwig – Access National Bank

Outline of Discussion

1. Streetshares

2. Republic Capital Access

3. Access National Bank

4. Q&A / Discussion





David BannVice President, Business Development

StreetShares, Inc.www.streetshares.com

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StreetShares is “Shark Tank meets eBay” for small business loans 1. Borrower underwritten and creates personalized “pitch.”2. Institutional and retail investors bid to fund any part of the loan. 3. Lowest bids combine to fund the loan.

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Customer example: Marine Corps veterans Andrew & Kyle

Need a <$50Ksmall business loanfor their company,

Waza Media.

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Personal: Andrew and Kyle “pitch” directly to investors

More informative: investors see business and personal infoDynamic pricing: set by marketplace auction

They found StreetShares affinity-based lending solution

y p g y p

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Lending Club has originated over “By 2025 . . .

Peer to Peer/Marketplace lending is booming

originated over $5B in consumerloans

By 2025 . . . $1T in loans will be originated in this manner globally.”

Source: Lending Club, Inc.

2007 2014

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7 Proprietary and confidential

Growing amount of online lenders

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And many, many more ….



Tell investors the whole picture

Investors compete to lend to you

Why not try social-lending

Free to apply to post

Free to build pitch (takes about 15 minutes)

Loan offer after auction is complete

Don’t like loan offer, don’t accept it. No obligation.

No prepayment penalty

Spread the word about your business

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Loan Amounts: $5,000 - $75,000 6 month, 1, 2 or 3 year term loan

About StreetShares Loans

Must have at least $25,000 in annual revenue

Must be at least 1 year in business Reasonable personal credit

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Let’s Connect!

[email protected]

LinkedIn: /davidstreetshares

streetshares.com

Twitter: @StreetShares

Facebook: /StreetShares

LinkedIn: /StreetShares

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Innovative Financing for Government Contractors



What do these have firms have in common?


Why do they sell receivables?

Balance Sheet Treatment

• Days Sales Outstanding Reduces

• Leverage Reduces

• Debt / Equity Ratio Lowers

• Increase in Free Cash Flow


• Off-the balance sheet

• Can be cheaper than a bank line of credit



Balance Sheet Example

ABL or Bank RCA

Liquidity and Efficiency

Current Ratio 1.09 2.4

Days Sales Outstanding 37 4

Leverage Ratio

Debt / Equity 14 4


Profitibility

Return on Assets 67.3% 218.8%

Note: 1.75MM Net Income

Balance Sheet Example

ABL or Bank RCA

Liquidity and Efficiency

Current Ratio 1.09 2.4

Days Sales Outstanding 37 4

Leverage Ratio

Debt / Equity 14 4


Profitibility

Return on Assets 67.3% 218.8%

Note: 1.75MM Net Income



Factoring is a Purchase

Factoring:Factoring:

Purchase of an invoice off balance sheet


Factoring – Credit of Your Customer




Asset Based Lending (ABL) / Payroll Funding

Asset Based Lending:Asset Based Lending: Lend against the asset of an invoice or future invoice


Factoring

“If a company has receivables on their balance sheet that are a better credit profile than the company removing them from the balance sheet throughprofile than the company, removing them from the balance sheet through securitization is a better, less expensive method of managing cash flow than if the company on its own borrowed against the same receivables. RCA’s program for government contractors provides that solution,”

‐‐ Michael Storm, former Managing Director, Citigroup Global Markets, Ltd.




RCA – 3 Takeaways

RCA Financing Structure

Non-Recourse

No Personal Guarantees

No Liens on Company Assets


“True‐Sale"

Items to Consider Bank RCA Factors Asset‐basedLender

No personal guarantees x

Financing Options

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No liens filed on assets x

Non‐recourse x

No financial covenants x x

No termination fees x x x

No maintenance fees x x


No maintenance fees x x

90% Advance on receivables x x x x

Rate decreases after 30 days x

Monthly cost usually < 1% x x x



Case Studies

RCA Case Studies

Real World Examples of RCA financing government contractors


RCA Financial Bid Letters

Situation: Company is not wining bids because bank is unable to generate letter to fulfill FAR p y g g

regulations; too little or not at all New Company is bidding on contracts with no financial backing / history To complete 8(a) certification, a firm need to show financial capability

Resolution:


RCA provides letter; no cost, no hooks, no strings RCA helps prospect, client, bank client win more work Firms can bid on any contract with Federal Government knowing RCA can fund



RCA Financing Rapid Growth

Situation: Winning contracts; cumbersome process to increase R d bl 6 th Revenue doubles every 6 months Management is focused on BD and execution

Resolution: RCA can increase facility size in 24 hours Invoices substantiate increase to unlimited value to support


Invoices substantiate increase to unlimited value to support growth

No effort required to support growth of firm RCA provides Financial Bid Letters for work

RCA Financing Joint Venture

Neither Firm A or Firm B needs to guarantee debt RCA doesn’t need Financials; no previous work RCA can distribute payments as directed in operating agreement


JV Entity



RCA Financing Start‐Up

Situation: No or little operating history Just won or bidding on work to a Prime or US Federal Government

Resolution: RCA provides financial capability letter – to help win work


p p y p RCA provides AR purchase facility commensurate with monthly invoices Firm utilizes RCA until bankable – no minimum terms or termination fees

RCA Financing Contract Ramp Up

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RCA allows firms to win work with confidence RCA internal cash flow measures is seamless to operations to your firm

Payroll Payroll

Your Firm


Work StartsDay 1

End of Month1st Invoice

Payroll Week 2

Payroll Week 4



RCA Financing Trouble with a Bank

Situation: R l ti hi h d Relationship has soured Loss of contract Annual net income loss High Debt / Equity Ratio

Resolution: RCA can provide AR revolver at rates and conditions better than traditional factors


RCA can provide AR revolver at rates and conditions better than traditional factors RCA deploys financial instruments within the capital structure to create liquidity RCA has vast experience in working with banks to provide smooth transition

RCA Financing Supply Chain

Leverage the True Sale Aspect of Factoring True Sale Protects OEM from small firm’s credit risk

Supplier(OEM)

Net 30Sell

X


Net 30Net 2

Sell Invoice



Evaluating Lenders

Client and former client referrals

Transparent Term Sheet Transparent Term Sheet

Allow for diversity of funding sources

No minimum terms or termination fees

Capacity to finance unlimited growth

Allows you to control the aspects YOU want to control


If the financing source is a factor: Legal Opinions from major law firms Opinions from big four accounting firms

REPUBLIC CAPITAL ACCESS, LLC

RCA is the largest, and fastest growing, specialty finance company exclusively for government contractors

RCA is the only specialty finance company that purchase receivables from government contractors in a true‐sale, off‐balance sheet fashion

A wholly‐owned portfolio company of Stephens Investment Holdings LLC, one of the nation’s premier private investment groups. Stephens Investments Holdings LLC is a privately‐held and family‐owned company based in Little Rock, Arkansas that traces its origins back to 1933.

Team has extensive federal contracting and procurement experience.


RCAADVANTAGE® is Republic Capital Access’s proprietary program to fund receivables generated by federal government contractors.



Affiliations & Partnerships


Contact Information

Matt Stavish, [email protected]

790 Station Street, 2nd FloorHerndon, VA 20170571 323 7606 103


571.323.7606 x 103



The Difference is AccessChallenges and Requirements in Lending to Government Contractors

Presentation to National HUBZone Conference

Challenges:

• MOST OFTEN:o Short Term Working Capital (<1yr)

• SPECIAL CIRCUMSTANCES:o Mobilization to start a new contracto Permanent Working Capital o Equipment Purchase o Business Acquisition/Partner Buy-Out




Short Term Working Capital

• Purpose: o Acceleration of cash flow to support working capital needs prior

to being paid by the Government or the Prime contractor.

INVOICE

+LOCFBO

-LOC / CashPaymentInvoice


PAYROLLPAYMENT

CashPayroll


• Facility Features: o Revolving Line:

• Ability to pay down and re-borrow• Automatic sweep to pay down the line

to minimize interest expenseso Borrowing is governed by a Borrowing

Base which ties to billed accounts receivable and in some cases, inventory.


receivable and in some cases, inventory.




Eligible Accounts Receivable:• Eligible Accounts Receivable:o Aged Less than 90 days from Invoice Date

o Progress Billings account receivable are allowed in special circumstances.

• Ineligible Accounts Receivable:o Common Ineligibles: Unbilled, contra-

accounts, cross-aged accounts, inter-companies account retentions and foreigncompanies account, retentions and foreign accounts and bonded receivables



l• Typical Structure:o Variable Rate based on Wall Street Journal Primeo Advance Rate of up to 80% on sub-contract receivables or

commercial receivableso Advance Rate of up to 90% on prime government receivables o Federal Assignment of Claim Act (FACA) of 1940

o May be required for prime Federal government contracts representing a y q p g p gsignificant concentration

o Collateral: 1st security interest on all business assets o Business owners’ personal guaranty




Special Circumstances

b l h l /• Mobilization, Growth Capital, Acquisition/Buy-out:o Capital challengeso Collateral is mostly A/R and tied up with the LOC

• Solutiono Growth capital with SBA funding o Mobilization funding outside of a Borrowing Base


Case Study:

• Company Profile: • Financing Structure:o 3-year old company - SDVOSB o Revenue grew from $1.1 Million to

$10.9 Million in a three-year periodo 100% Prime contracts

o $600 Thousand SBA 7a loano 1st lien on all business assets less

receivables sold or to be sold to RCAo Personal Guarantee from ownero Covenants: None

• Outcome:o LOC relieved stress on cash flow

C bl t f ll

• Situation: o Company had a negative net worth and

balloon payment due to third party for start-up funding

o Company was able to successfully repay and exit third party start up funding


• Financing Approach:o Access provided an SBA 7a loan to take

refinance existing term debt and RCA provided the receivable based funding



Case Study:

• Company Profile: • Financing Structure:o 35 year old company, which changed

owners in 2004 o Revenue grew from $7.6 Million in 2013

to $8.3 Million in 2014o Mix of Prime and Sub contracts,

primarily with DoD.

o $2.4 Million SBA 7a loan with seller financing

o $4 Million A/R LOCo 1st lien on all business assetso Personal Guarantee from ownero Advance rates of 80% on receivableso Covenant: NW and Profitability

• Outcome:o Seller exited with lump sum at

settlement

• Situation: o Current owner wished to exit, President

(non-owner) wanted to acquire the company. settlement

o LOC relieved stress on cash flow


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• Financing Approach:o Term funding to finance acquisition and

LOC to finance receivables

Let us help you grow your business

Contact us today:

Chad Ludwig, VPGovernment Contractor Lending [email protected]: (703) 871-7358




Questions

Dave BannVP Business Development

Matt Stavish [email protected]: 571-323-7606 x 103

VP Business [email protected]

Chad Ludwig, VPGovernment Contractor Lending [email protected]: (703) 871-7358

financing options for government contractors - … · financing options for government contractors...

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