Extreme commercial funding: non-traditional capital sources for new and established companies

You just received a contract to sell $65 million worth of oil over the next 10 years from one of the largest purchasers of oil and gas in the United States.

You just received a contract to sell $65 million worth of oil over the next 10 years from one of the largest purchasers of oil and gas in the United States. Great news! But not so fast. In order to make good on that contract, you need $35 million in working capital to re-work and re-open an existing oil field as well as purchase new storage tanks and delivery vehicles.

Unless you can secure some type of funding, the contract you have for $65 million is worthless. To top it all off, your loan requests have been turned down by several banks and hedge funds.

So what’s next? Don’t panic. There are companies like ours that specialize in funding companies like yours up to 100% of the $65 million contract, based on the agreed-upon contract.

Welcome to the world of “extreme commercial funding” where there are no loan limits, but rather minimums starting at $5 million and above. The concept is not new, but in the past was extremely difficult to utilize due to the underwriting restrictions and guidelines. Now it has been reworked, repackaged, and restructured with flexibility and made available to the public in what is called the Platinum Leverage Product.

You can’t just walk into a bank and ask for this product because they don’t have it, nor do they have access to it. Some banks may offer a variety of product financing, but they typically require 25% to 30% down. Then you will need to present them with your “established” company’s financials over the past 3 to 5 years. In other words, don’t even think about asking if you are a new start-up company.

In other words, you will be asked to jump through hoops and go through extensive scrutiny in order to “maybe” get some type of financing. At best, you may get a 3- to 5-year loan with a variable rate of prime plus 2% to 3%.

The whole process may take 60 to 90 days - or more. Don’t forget about upfront fees, annual fees, closing fees, heavy focus on the borrower, arduous documentation, and then you may be asked to cross-collateralize everything you own.

Finally, the bank is probably going to max your loan at $3 million to $4 million, if you’re lucky to get that much.

In contrast to this, the Platinum Leverage Product enables businesses and private individuals to garner advanced funding on unconditional contracts that are investment grade. This tool turns an investment-grade instrument into a fixed-income paper instrument.

The typical collateral is an unconditional contract or an unconditional bond, CDs, mutual fund, or other assignable instruments with measurable value. All instruments must be unconditional (“take or pay”), and investment grade and assignable to a third party. The contract must be “sum certain” and “date certain.” The grade of the collateral is based on the guarantor who is responsible for the cash flow.

Examples of collateral are as follows: CDs, mutual funds, unconditional contracts to purchase goods, irrevocable letters of credit, unconditional bonds, unconditional retirement packages, annuities, and tax credits - just to name a few.

The primary consideration for this product doesn’t have anything to do with the borrowers, but rather the credit worthiness of the business entity that is responsible for the paying of the instrument. This means that the product works great for both start-up companies and established companies as well.

The Platinum Leverage Product allows for up to 100% of the acceptable instrument value, less the cost of funds (interest), which is an institutional rate of 7.5% to 9.5%, depending on the size and complexity of the deal.

The minimum loan amount is $5 million, with no maximum, and the terms of repayment will coincide with the terms of the instrument. The structuring of the repayment of funds is also very flexible and can be structured for a monthly, quarterly, semi-annual, or even annual basis. The structure of the payment can also be deferred for several years, depending on the length of the term.

The typical turn time for this product is two weeks - less in some instances. It comes with terms up to 20 years (30 years if it is a government contract), and this is non-recourse funding.

As mentioned previously, this program requires an investment-grade instrument, which means that the “out taker” (purchaser) needs to be S&P or Moody’s triple BBB rating or better. If the purchasing entity is a strong company, but for whatever reason doesn’t have either rating, then strong financials can be used.

Here are some other opportunities for uses for this product:

1. Alternative energy businesses (ethanol, biodiesel, etc.)
2. Large equipment manufacturers
3. Tax credit holders
4. Natural resource businesses (ore, copper, precious metals, wind turbine farms, etc.)
5. Universities (endowments)
6. Developers (construction companies)
7. CEOs and other senior executives (golden parachute clauses)
8. Technology companies
9. Large annuity and CD accounts
10. Business brokers

This type of product offers a non-traditional path to capital, and it’s primary strength and benefit is that it recognizes the time/value of money.

The product also gives the small business owner the ability to compete against the big boys by strengthening the bid-ability of a small company, which allows them to negotiate contracts and give terms to others that in the past were not available to them.

The Platinum Leverage Product will change the way in which many big businesses fund their project needs and will give venture capitalists a run for their money, as well as giving the small start-up company the opportunity to not lose their controlling interest to others (venture capitalists, for instance).

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