Equipment Lender

searcher profile

April 21, 2023

by a searcher in Philadelphia, PA, USA

Hey Everyone,

So I'm about to close on an acquisition with a significant amount of hard assets in the form of vehicles and large equipment. I am looking to get a line of credit on these assets post close for working capital but the issue I keep running into is that this is an asset purchase and as a result the new entity acquiring the assets has only been "in business" 2-3 months. Even though the company I'm acquiring has been in business for 30 years, generates millions in revenue each year, and has almost a million dollars worth of hard assets owned free and clear, lenders still treat the new entity as a startup. Does anyone have any advice or know any lenders who are more flexible and focus more on the assets than the entity. Thanks

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commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
The problem may very well be asking for a "Line of Credit" against fixed assets. Banks/lenders give a "Term Loan" against fixed assets; the reason being that fixed assets depreciate in value. The "Line of Credit" is against A/R and Inventory which refreshes periodically.

It is not clear if you,
(A) Are buying a business (Asset vs Stock structure does not matter) or
(B) Are you just buying a fleet of vehicles and equipment (B)? or
(C) Are you buying an underperforming business?
If A, you should not have problem borrowing (Term Loan) against assets. If B or C you will have a challenge even with a Term Loan.
commentor profile
Reply by a searcher
from University of California, Berkeley in San Francisco, CA, USA
Strange - story doesnt make sense. As many have said: 1) NewCo by it's nature is not going to have a history 2) splitting collateral does not change your available tangible assets 3) LOC is for WC, not rolling stock and PPE 4) for financing future capex (for rolling stock and PPE) your lender should be able to accommodate. If not, you need to get on the same page with them on carve-out in your loan docs for another financing source (either leasing or debt financing) for future maintenance and growth capex. Standard stuff. Strange feedback from your lender.
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