First thing to know about ‘special loans’ is you’re not alone! This happens to a great number of very good and well managed companies that we regularly have the privilege of working with blending new financing during, what’s typically, a trough period. I say trough because the company needs to turn the down-cycle around in order to increase the ratios and most often in order to do this, a company requires either restructuring or new funding. We originate the funds, not correct your structure.

For those who don’t know what ‘special loans’ are, it’s simply a separate group of bank financing risk officers who assist (involve themselves in your business) with your business loan ratio’s as a company has recently become non-compliant with the bank’s risk department which may include default. Simply put, you’ve fallen below the safe threshold on your working capital limits and your short term assets have fallen, ratio wise, below your short term liabilities. This minimum figure to avoid special loans is often regarded as 1.25:1. It’s not uncommon to be surprised and get that ‘demand payment’ or ‘loan recall’ letter regardless of your history and success which is clearly not the case today.

While the bank is now monitoring your business very closely, you have your CFO look for alternative financing – Asset Based Lending (ABL financing) or components of likely offer the financing opportunity for your business. Across the balance sheet there are many assets that can be funded in creative ways so that you don’t have to keep cutting expenses. Combinations of PO to AR financing supported by inventory and existing hard assets/equipment can provide the security to fund a business’ existing credit lines they’re use too, acquire new equipment and even increase cash flow hence, ramp up sales over the next year and boost a company’s ratio limits moving out of special loans. This happens, just not always back with your old banker.

Sometimes this type of financing can come close to matching your lending lines when the banks ratios are below their risk tolerance. These loans are not meant to take-out the banks permanently as the banks still have the best lending rates for SME however, they are meant to bridge your business back to health.  Lastly, it’s not uncommon to recognize this banking relationship is over and a new bank will be sought out to restart the traditional lines you were accustomed too.

Regardless of institutional or non bank funding needs contact only an expert in both financing transactions. We originate financing for companies who, at times, require non bank financing, keeping your business in business.