Accounts Receivable Line of Credit

USA Subsidiary of a Foreign Parent Company

Situation

This USA subsidiary of a foreign parent company manufacturers equipment used for storage and processing in the compressed-air and oil and gas industries.  Although the subsidiary has operated in the Uinted States for over 10 years, the company was marginally profitable and maintained a deficit net worth on the Balance Sheet due to significant payables owed to the parent company overseas.  The company was Factoring their Accounts Receivable as a bank could not provide a traditional line of credit since their largest customer represented a 70% Accounts Receivable concentration.  In an effort to build a relationship for the future, the banker introduced Magnolia Financial as an alternative financing solution.

Solution

With significant experience funding domestic subsidiaries, Magnolia understood the nuances of dealing with foreign ownership.  Despite the 70% Accounts Receivable concentration, Magnolia Financial focused on the long-term customer relationship and the strong pay history.  Using only Accounts Receivable as collateral, Magnolia Financial structured a $3,000,000 Working Capital Line of Credit with NO PERSONAL GUARANTEES.  The Magnolia credit facility provided the company with additional availability and also reduced the funding costs from their previous Factoring relationship.  The company expects to transition to a traditional bank line of credit within 12 - 18 months.

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