A privately held importer and distributor in the FMCG sector was experiencing working capital pressure due to rapidly growing demand for several exclusive brands.
The importer had a status quo of approximately $11m of stock on hand, with a working capital cycle of around 110 days, funded entirely by equity. Because of the relatively nascent market presence of the key brands, local banks were unable to recognise a material liquidation value of the stock and thus could not lend at a useful LVR for the Company.
A non-bank credit fund was able to provide a ‘borrowing base’ facility, allowing a 55% LVR against the highest velocity stock and 40% LVR against other stock.
The higher cost of funds (>10%) compared to bank rates, was significantly outweighed by healthy gross margins on sale (c. 40%). Therefore, the funding package delivered material earnings growth via a 2x uplift in stock throughput.
