Two college friends decided to do a study abroad in Asia. As their time overseas came to an end and they graduated, they decided to remain overseas and began working for an automobile accessories manufacturer. After several years, the friends saw an opportunity to return to the U.S. and start their own business. They approached the company owners about distributing the accessories in the United States, and ultimately struck a deal to become the exclusive North American distributor of their products. Since the two friends did not have sufficient capital to actually start the business, they reached out to two local businessmen that were willing to co-sign a small bank loan to get the business started.
Beginning the business out of their parents’ garage, the two friends eventually expanded to a leased, small office and warehouse space. The business established several key customer relationships and experienced steady growth. A dispute with the Asian manufacturer led to a lengthy legal battle in a Chinese court which was won by the friends. However, the automobile accessory business had plateaued so the friends sought out other foreign manufacturers. An arrangement was reached with a lighting and plumbing fixture manufacturer which allowed the friends to continue their business opportunity.
Throughout their initial success, the business was supported by a small, but increasing line of credit from a local bank. Each successive increase required that the two co-signers remain on the note. New growth opportunities for the lighting and plumbing fixture business presented the two friends with a dilemma. In order to take advantage of the new customer opportunities, a larger line of credit was needed. The two friends also felt that they had proven themselves as a successful small business and that the co-signers should no longer be required. They approached the bank about the line increase and removing the co-signers.
The bank was also in a bit of a dilemma. While the existing line of credit had always performed well, the business’ financial ratios did not warrant an increase, and certainly not without the two co-signers. The two friends had grown increasingly frustrated as they saw the new business opportunities beginning to slip away. The bank introduced the business to VCF who was able to structure an ABL facility for the business and release the two co-signers.
A little over two years later, the business’ sales have increased over 64% as the VCF line provided the two friends with the necessary financing to not only realize their initial opportunities, but to also seek additional opportunities as their business continues to grow.
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