Cash crunch

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by a searcher from Miami University of Ohio
in Cleveland, OH, USA

2h ago

Cash crunch

My business partner and I aquired an HVAC business 15 months ago. We have grown the top line about 60%, however, we have significantly overspent, by a long shot on marketing and hiring, as well as adding electrical and plumbing (which obviously are not profitable right away). We have now found ourselves in a cash crunch. We can pay our loan on Monday (11/1), but some suppliers will not get paid on Monday. We currently do not have a revolving line of credit, and we have not approached the bank for any reprieve yet but will likely be doing on Monday. A few details: at this point, our technicians are almost 100% booked, so I don't think our first thought is to cut the folks bringing in the money. Our office is a skeleton crew from an admin perspective. I am fully active in the business day-to-day as well. Any help on the best levers to pull to get us through this time is much appreciated.

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reply by a lender 48m ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I am terribly sorry to hear the situation you are in. I would not cut off revenue. That will end up hurting you in the long run and make it harder. As for securing outside financing, if you have a senior lender that has a first lien on all of your business assets, it will be hard to get a traditional line of credit. Most lenders will not want to go into a second position on your business assets. I also would not recommend going to the Bank to first ask for a loan modification. You would be better off to go to them and state you are growing and have additional working capital needs and to see if they could provide you with a working capital line. If they say "no", then I would ask them to release your accounts receivable so that another lender can come in and lend on those assets, assuming you have accounts receivable. If they will not release the accounts receivable, you do not have accounts receivable, or they will not provide you with a line of credit, then you can go back and approach them about a payment modification. But most lenders will not provide a payment modification if you are not currently in default. So if they do not offer it right away, then you would need to make a decision if you wish to default on the loan, and that will open up a whole other can of worms for you. The last option you have is to get a Merchant Cash Advance ("MCA") loan. Those lenders do not require collateral. They in essence lend off of your cash flow by looking at your bank statements. The interest rates are cray high and the repayment terms are very short. I generally do not recommend MCA debt because it can somewhat be like crack cocaine. Once you start using it, sometimes it can be hard to break away from it due to the expense. But if you are really in a situation where you do not have other options and you are confident the revenue and cash flow will catch up in short-order, this is the one-time when MCA might make sense. If you have additional questions you can reach me here or directly at redacted Good luck.

reply by a professional 3m ago
from Ohio Northern University in Dayton, OH, USA

60% growth in 15 months takes a lot of cash, and with no revolving line the gap shows up in payables first. The most important thing before Monday is a 13-week cash forecast: every payable, payroll, loan payment and expected collection in the week it actually lands. That tells you how short you are and for how long, and it's the first thing a bank will ask for.
Then call the suppliers you can't pay in full before Monday. A partial payment and a firm date for the rest is a better conversation than a missed payment with no notice.
On cash coming in, invoice the day the job is done, take deposits on installs and equipment, and chase anything past 30 days. On cash going out, I'd hold any marketing or hiring that won't pay back inside 90 days until the forecast says you can afford it.
I agree with Brad on the bank. Walk in with the forecast and ask for a working capital line to support growth, not a modification.
Happy to talk through it if that's useful.