Overcoming Financial Distress With Alternative Financing
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It’s been nearly four years since the onset of the COVID-19 pandemic. As the repercussions of the health crisis continue to be felt globally, many companies struggle to maintain financial stability. 2023 has seen one of the highest business bankruptcy rates in a decade, and the outlook for 2024 suggests more challenges in the short term. Despite barriers imposed by tightened credit policies from traditional banks, resilient companies are finding new alternative financing sources to support recovery and growth.
In this article, follow the journey of a national brand frozen food manufacturer as they navigated relocation, pandemic challenges, financial distress, a successful turnaround, and ultimately, a return to growth. This story exemplifies how innovative thinking, strategic planning, and flexible business financing can provide financial stability and facilitate expansion.
Learn how Pegasus Foods partnered with an industry-leading alternative lender to overcome financial distress and return to growth.
The Pegasus Foods Journey: From Distress to Growth
Pegasus Foods, a frozen food manufacturer with a 135,000 square-foot plant, is a leading provider of handcrafted frozen appetizers and desserts for major food service and retail clients nationwide.
The company faced a pivotal moment when rising labor costs prompted the organization to move from Los Angeles to Dallas in 2018-2019. This relocation brought the potential for new opportunities but also challenges, leading to a loss of corporate knowledge and the need to rebuild a workforce in a new location.
The onset of COVID further compounded the financial strain that ensued. However, the pandemic brought a silver lining as some products experienced a surge in popularity. From a management perspective, it was akin to a startup experience with new talent, processes, and facilities.
In 2021, facing unexpected costs and challenges, Pegasus Foods decided to end its banking relationship due to lending restrictions. They turned to eCapital, a leading alternative lender, for a crucial lifeline.
Vicki Kraft, the CFO of Pegasus Foods, provides insights into their journey “My initial assessment of the situation, I won’t deny that it appeared to be an uphill battle. We began by scrutinizing our SKU lineup and delisted those that failed to contribute to the bottom line. Focusing on our top ten SKUs, which generated substantial revenue, allowed us to streamline operations and improve profitability. However, on the financial side, one of the first things we had to do was refinance our loan and find a lender who understood the complexities of our turnaround situation, and a partner who would be flexible with some of the unknowns that we were facing.”
A Different Approach: A Lender Who Understands
While many lenders wanted to see financial forecasts and lofty performance goals without providing substantial support, Vicki emphasized how eCapital’s approach differed. “Typically, I haven’t seen partners (lenders) come out to tour facilities and have conversations with operations.” Viki continued, “I haven’t seen partners wanting to understand our business’s manufacturing or operational sides.” However, that was until the eCapital team conducted a facility tour, delved into the intricacies of Pegasus’ manufacturing processes, and inquired about the necessary equipment for achieving growth during the proposed turnaround. Insights gathered from this tour proved essential in crafting a flexible financing solution tailored to meet Pegasus’ specific needs.
The flexible solution
Pegasus Foods leveraged two funding mechanisms with eCapital – an ABL solution used with a revolver and a Capital Expenditure (Capex) loan embedded in the funding package. When leveraging the Capex loan to procure essential equipment for their expansion, it’s noteworthy that eCapital’s evaluation was based on the identified potential, not collateral security.
With the support of flexible funding solutions and expertise provided by a lender dedicated to their success, Pegasus Foods successfully transitioned from distress to growth.
Supporting a comprehensive growth strategy
The story doesn’t end there. One of the most valuable services a lender can offer is the support needed to develop and execute a comprehensive growth strategy. A crucial part of this support is knowing the company inside and out to address all needs and opportunities.
Vicki shared how the assistance provided by eCapital extended beyond the initial funding, “On the other side of the turnaround, we found ourselves in a position to pursue growth. However, being a food manufacturer comes with a cash cycle that can take up to 45 days, from purchasing raw materials to receiving customer payments. This is where we were so fortunate to have eCapital as a partner to help us bridge that gap and fund our growth. The flexibility and strategic benefits of our asset-based lending (ABL) solution with eCapital have been instrumental in our growth and success.”
Conclusion: Choosing your financial partner wisely
As the industry continues to face economic challenges small and midsize companies will need supportive lenders willing to work with them. When considering a lender to overcome financial distress, choose carefully.
Vicki provides valuable counsel: “My advice would be to approach the decision with an open mind. While many CFOs seek diversity and expansive credit facility options, it is crucial to recognize that specialty lenders possess unique expertise and can fulfill specific needs with greater ease. They are nimble, well-versed in industry nuances, and more attuned to the demands of turnaround situations.”
Assess the lender’s experience in your industry, their willingness to fully understand how your business works, the challenges to overcome, and their ability to tailor flexible financing options that address your specific needs. Selecting the right lender may be the most critical element of your company’s continued success story into 2024 and beyond.
Key Takeaways
- 2023 has seen one of the highest business bankruptcy rates in a decade, and the outlook for 2024 suggests more challenges in the short term. Many companies are struggling to maintain financial stability.
- Despite barriers imposed by tightened credit policies from traditional banks, resilient companies are finding new alternative financing sources to support recovery and growth.
- Leverage the experience of your peers to help guide strategic decisions.
- Follow Pegasus Foods’ real case journey from distress to growth by partnering with a leading alternative lender.
ABOUT eCapital
Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.
We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.
eCapital Corp
eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.