WHO, WHAT, WHEN, WHERE, WHY & HOW OF
WHO can benefit from Contract Financing?
Literally, there are thousands of small companies – ranging from long
lived to emergent – that either have or are working on contracts with investment
grade credits. These companies could use your help to provide desperately
needed capital to complete their contracts.
WHAT is Contract Financing?
Contract Financing (or monetizing) is a very flexible financial tool providing
a number of capital options – much less expensive and onerous than equity or
sub-debt. So long as there is an equipment component, contract financing can
be used to:
- Acquire equipment necessary for the fulfillment of a service contract
- May provide much needed working capital to run your business and/or develop infrastructure to facilitate the contract services
- Refinance existing equipment and improve cashflow
- Accelerate contract revenues
- As an entre’ to repeat business
- Each transaction is a custom product designed to meet the needs of
- you and your customers.
Lender provides contract financing for just about any contract where a component
of equipment is necessary to complete the contract. There is a provider (usually
a smaller company) and an end user (investment grade). The term of a Contract
Finance can be as short as 12 months, or as long as 10 years.
This product has a variety of applications and has worked successfully with:
- Service Agreements
- Software as a Service
- Warehouse Agreements
- Management Agreements
- Distribution Agreements
- Muni Contracts
- Federal Contracts
WHY can the Contract Finance product be valuable to you?
The Contract Finance deals are averaging close to $6 million per transaction
(although a number of contracts in various stages of process would
dramatically increase that average). This form of financing could be extremely
valuable to smaller companies that don’t have the resources to buy equipment or
adequate working capital. In many cases, it can be used as an alternative to
equity or to augment existing equity in the provider company. In fact, many
smaller companies do not bid large contracts for fear that they will be unable to
fulfill them because of a lack of capital. The equipment necessary to fulfill a
contract can be existing equipment that is refinanced or sold and leased back, or
brand new equipment that is located at either the provider’s or the end user’s
location. These need not be a new contract to qualify for Contract Finance. ICL
can monetize the remaining balance/term of an existing contract.
HOW does Contract Financing work?
Lender will work with your customer and provide language, which is embedded in
the contract via addendum, that will allow an assignment of all or a portion of the future revenues to be taken. A present value of those revenues will give your customer the capital they need to complete the contract. In many instances, a present value consisting of even more than the essential capital needed to acquire the equipment, injecting much needed working capital.