Single Debtor, Big Dreams: Securing Financing When You Have One Big Customer

Cal Navatto

Last Modified : Aug 20, 2024

Fact-checked by: Bruce Sayer

Single Debtor, Big Dreams: Securing Financing When You Have One Big Customer

The post-pandemic commercial lending landscape has changed significantly as the credit market tightens. Securing business financing in this environment can be highly challenging, especially for high-growth companies facing unique challenges.

One such challenge is single-debtor concentration, when a significant portion of a company’s revenue comes from a single customer. This can raise red flags for conventional lenders, who are hesitant to extend credit when a company’s financial well-being relies heavily on one source. Fortunately, alternative lenders have a different risk profile than traditional lenders and offer tailored financing solutions with greater flexibility.

This blog explores a recent success story from eCapital in which a $15 million invoice factoring facility was provided to a disruptive transportation technology firm with high debtor concentration. This case is a valuable example of overcoming the single-debtor hurdle through creative and tailored financing solutions.

The Challenge: Breaking Through the Single-Debtor Barrier

The featured transportation tech company possessed impressive advancements and a broad market reach. However, their dependence on a single major client presented a roadblock in their quest for financing. Many lenders view single-debtor scenarios as high-risk and are hesitant to extend credit due to the potential consequences of a strained relationship with that customer.

The May 2024 Federal Reserve Beige Book underscores this challenge as tight credit standards and high interest rates continued to constrain lending growth. While highlighting continued economic expansion across most Federal Reserve Districts, the report noted a trend of increased caution among commercial lenders. One key factor influencing lending decisions is the strength of the borrower’s financial statements. Businesses with a diversified customer base and robust revenue streams are generally viewed as more creditworthy.

Understanding the Business, Not Just the Numbers

In today’s economic environment, businesses need the support of lenders with a broader view of risk and opportunity. Fostering successful partnerships goes beyond simply looking at financial statements – companies need lenders who understand their business, not just the numbers.

In this case, transportation industry expertise and an efficient due diligence process provided eCapital with a deep understanding of the transportation tech firm’s business model. Focus was placed on understanding the strength and stability of the company’s relationship with the single debtor and its projected growth trajectory.

Tailored Solutions for Unique Situations

With this comprehensive understanding, eCapital’s team crafted a bespoke invoice factoring facility specifically designed to address the company’s unique circumstances. This wasn’t a one-size-fits-all solution; instead, it was a custom-tailored and flexible facility. Key features that empowered the company to capitalize on future opportunities included the following:

• Increased Availability: The facility provided the necessary working capital to meet the company’s immediate and anticipated needs, ensuring smooth operations and growth initiatives.
• Minimized Restrictive Covenants: The agreement minimized restrictive covenants, allowing the company operational flexibility to make strategic decisions without being hindered by stringent limitations.
• Growth-Focused Structure: The facility’s structure was designed to seamlessly support the company’s projected triple-digit annual growth, ensuring it had the resources to maintain their upward trajectory.

Beyond the Transaction: Building Partnerships for Innovation

This collaboration goes beyond simply providing the funds needed to maintain operations. By overcoming the single-debtor hurdle, eCapital empowered the transportation tech firm with the financial flexibility to continue breaking barriers and introduce transformations within the industry. This exemplifies a commitment to fostering partnerships that fuel innovation across various sectors.

The Importance of Tailored Financing

This case of the transportation tech firm isn’t an isolated one. Many mid-market companies face various financing challenges, including debtor concentration, limited or poor credit history, industry-specific hurdles, and limitations imposed by less flexible finance structures. This is where eCapital steps in, offering tailored financing solutions and diverse services that include the following:

• Comprehensive Solutions: eCapital provides a range of financing products that include:

Invoice factoring

Asset-based lending

Payroll funding

Healthcare receivables financing

Lines of credit and more

These solutions can function independently or in combination with other funding options, with customized terms to cater to each company’s specific needs.

• Industry Expertise: Our team possesses extensive experience and knowledge across various industries, allowing us to assess conditions, anticipate roadblocks, and quickly solve problems with creative solutions. eCapital leverages this expertise to tailor services that align with each client’s business model and growth goals.

Conclusion

As the landscape of commercial lending evolves in the post-pandemic era, many middle-market companies and large enterprises are encountering increased challenges in securing working capital. This shift has created barriers for undercapitalized SMBs and larger firms seeking funding.

However, alternative lenders are emerging as a key solution to this credit gap. They offer enhanced flexibility, tailored solutions, and collaborative partnerships that address businesses’ specific needs.

The advantage of alternative lending is well illustrated by the case study in which eCapital provided a specialized $15 million invoice factoring facility to a transportation technology firm. This industry innovator was restricted from accessing conventional credit solutions due to their reliance on a single major client. eCapital recognized the company’s growth potential and tailored a financing solution to fit its unique needs. The resulting financing arrangement enabled the firm to pursue its strategic objectives and support its projected triple digit annual growth.

This case underscores the value of customized financing solutions in overcoming specific business challenges and enabling sustained growth in today’s tightening credit market.

Contact us today to learn about our approach to lending to support companies in overcoming financial challenges and fostering long-term success.

Key Takeaways

• As the credit market tightens, many middle-market companies and large enterprises face increased challenges securing working capital.
• Alternative lenders are bridging the credit gap with flexible, customized solutions and collaborative partnerships tailored to businesses’ unique needs.
• The advantage of alternative lending is well illustrated by a case study in which eCapital provided a specialized $15 million invoice factoring facility to a transportation technology firm with reliance on a single major client.
• This case underscores the value of customized financing solutions in overcoming specific business challenges and enabling sustained growth in today’s tightening credit market.

Cal Navatto

As a trusted financial advisor to private equity groups, middle-market executive teams and corporate restructuring professionals for more than 30 years, Cal is adept at originating, structuring and negotiating asset-based lending and invoice factoring credit facilities for businesses across the US.

Prior to joining eCapital, Cal held the position of Vice President - CIT/Commercial Services Group, a subsidiary of First Citizen's Bank. He has also served as Senior Vice President, Finance at UMB Bank and NewStar Business Credit and Vice President, Business Development at First Capital.

Cal received his Bachelor of Arts in Economics from Montclair State University.