Loan against AR

searcher profile

May 06, 2022

by a searcher in Chicago, IL, USA

I am negotiating to purchase a business which has $1M in AR and I am wondering whether it is possible to use the AR as colateral in the capital stack in order to reduce the equity I will need to provide?

Are there lenders who would see this as my "skin in the game"?

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commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
1) No borrowing against the assets of the Target can susbtiture for your "skin in the game".
2) Borrowing against A/R is common. It is called Line of Credit or Revolving Credit Facility. Facoring A/R is a different than LOC or RCF.
3) A/R borrowing reduces the total equity requirement or need for seller financing.
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Reply by an investor
from Indiana University at Bloomington in Austin, TX, USA
Depending on the nature of the AR and how long it's been on your books, you may be able to borrow against it. A good rule of thumb I use is to assume factoring can help at 85% LTV (loan to value). That said, if you're using debt in your transaction, use of AR will be counted against your certain types of debt. Thus, it will impact your debt to equity ratio, You're welcome to DM me. I may be able to put you in touch with a friend who can help with this.
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