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
2015 National HUBZone Conference
David Bann
Vice President, Business Development
StreetShares, Inc.
www.streetshares.com
3
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.
Customer example: Marine Corps veterans Andrew & Kyle
Need a <$50K
small business loan
for their company,
Waza Media.
5
Personal
: Andrew and Kyle “pitch” directly to investors
More informative:
investors see business and personal
info
Dynamic pricing:
set by marketplace auction
They found StreetShares affinity-based lending solution
y
p
g
y
p
Lending Club has
originated over
“By 2025 . . .
Peer to Peer/Marketplace lending is booming
originated over
$5B in consumer
loans
By 2025 . . .
$1T in loans will
be originated in
this manner
globally.”
Source: Lending Club, Inc.
2007 2014
g
y
7 Proprietary and confidential
Growing amount of online lenders
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
9
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
Let’s Connect!
[email protected]
LinkedIn: /davidstreetshares
streetshares.com
Twitter: @StreetShares
Facebook: /StreetShares
LinkedIn: /StreetShares
11What do these have firms have in common?
Innovative Financing for Government Contractors
Why do they sell receivables?
Balance Sheet Treatment
• Days Sales Outstanding Reduces
• Leverage Reduces
• Debt / Equity Ratio Lowers
• Increase in Free Cash Flow
Innovative Financing for Government Contractors
• Off-the balance sheet
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 4Innovative Financing for Government Contractors
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 IncomeFactoring is a Purchase
Factoring:
Factoring:
Purchase of an invoice off
balance sheet
Innovative Financing for Government Contractors
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
Innovative Financing for Government Contractors
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 through
profile 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,”
RCA – 3 Takeaways
RCA Financing Structure
Non-Recourse
No Personal Guarantees
No Liens on Company Assets
Innovative Financing for Government Contractors
“True‐Sale"
Items to Consider
Bank
RCA
Factors
Asset‐based
Lender
No personal guarantees
x
Financing Options
p
g
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
Innovative Financing for Government Contractors
No maintenance fees
x
x
90% Advance on receivables
x
x
x
x
Rate decreases after 30 days
x
Case Studies
RCA Case Studies
Real World Examples of RCA financing government contractors
Innovative Financing for 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
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
Innovative Financing for Government Contractors
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
Innovative Financing for Government Contractors
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
Innovative Financing for Government Contractors
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
Y
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 Starts Day 1 End of Month 1stInvoice Payroll Week 2 Payroll Week 4RCA 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
Innovative Financing for Government Contractors
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 30
Sell
X
Innovative Financing for Government Contractors
Net 30
Net 2
Sell InvoiceEvaluating 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
Innovative Financing for Government Contractors
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
Innovative Financing for Government Contractors
Contact Information
Matt Stavish, VP
[email protected]
790 Station Street, 2
nd
Floor
Herndon, VA 20170
571 323 7606 103
Innovative Financing for Government Contractors
The Difference is Access
Challenges 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 contract
oPermanent Working Capital
oEquipment Purchase
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 +LOC FBO -LOC / Cash Payment Invoice
Presentation to National HUBZone Conference
PAYROLL
PAYMENT
Cash Payroll
Short Term Working Capital
•
Facility Features:
o
Revolving Line:
•
Ability to pay down and re-borrow
•
Automatic sweep to pay down the line
to minimize interest expenses
oBorrowing is governed by a Borrowing
Base which ties to billed accounts
receivable and in some cases, inventory.
Presentation to National HUBZone Conference
Short Term Working Capital
Eligible Accounts Receivable:
•
Eligible Accounts Receivable:
o
Aged Less than 90 days from Invoice Date
o Progress Billings account receivable areallowed in special circumstances.
•
Ineligible Accounts Receivable:
o
Common Ineligibles: Unbilled,
contra-accounts, cross-aged contra-accounts,
inter-companies account retentions and foreign
companies account, retentions and foreign
accounts and bonded receivables
Presentation to National HUBZone Conference
Short Term Working Capital
l
•
Typical Structure:
o
Variable Rate based on Wall Street Journal Prime
o
Advance Rate of up to 80% on sub-contract receivables or
commercial receivables
o
Advance Rate of up to 90% on prime government receivables
oFederal Assignment of Claim Act (FACA) of 1940
o May be required for prime Federal government contracts representing a y q p g p g significant concentration
o
Collateral: 1
stsecurity interest on all business assets
oBusiness owners’ personal guaranty
Special Circumstances
b l
h
l
/
•
Mobilization, Growth Capital, Acquisition/Buy-out:
o
Capital challenges
o
Collateral is mostly A/R and tied up with the LOC
•
Solution
o
Growth capital with SBA funding
o
Mobilization funding outside of a Borrowing Base
Presentation to National HUBZone Conference
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 period
o 100% Prime contracts
o $600 Thousand SBA 7a loan
o 1stlien on all business assets less
receivables sold or to be sold to RCA
o Personal Guarantee from owner
o 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
Presentation to National HUBZone Conference
• 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 2014
o Mix of Prime and Sub contracts,
primarily with DoD.
o $2.4 Million SBA 7a loan with seller
financing
o $4 Million A/R LOC
o 1stlien on all business assets
o Personal Guarantee from owner
o Advance rates of 80% on receivables
o 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
Presentation to National HUBZone Conference
p y
• 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, VP
Government Contractor Lending Group
[email protected] Direct: (703) 871-7358
Questions
Dave Bann
VP Business Development
Matt Stavish
VP
[email protected]
Direct: 571-323-7606 x 103
VP Business Development
[email protected]
Chad Ludwig, VP
Government Contractor Lending Group
