A solution for large-dollar commitments of $1 million + over 2 years or more; for an overview of this approach click here.
RSR Financial can arrange Contract Financing for firms that will monetize their major contracts for future product or service-delivery obligations. There are many smaller firms that avoid bidding on large contracts fearing that they will be unable to fulfill them due to a lack of capital. The major advantage of Contract Financing is that it provides financing to companies that typically don't meet traditional underwriting standards. In fact, Contract Finance most useful to companies that are not financially strong enough to obtain easy money elsewhere or strong enough to fund their contract projects internally. Contract Financing is designed as a substitution for equity, which can be very costly and intrusive on company management. In most cases, Contract Financing is employed as an alternative to outside, equity infusions.
Contract Financing can be used for just about any contract where a component of equipment is necessary to complete the contract. Basically, there needs to be a provider (usually a smaller company) and an end user (usually an investment grade company). Equipment necessary to fulfill a contract can be existing equipment that is refinanced or sold and leased back, or brand new equipment that can be located at either the provider's or the end user's location. The term of a Contract Finance Agreement can be as short as 24 months, or as long as 10 years, and these contracts don’t need to be new to qualify. Contracts can be monetized over the remaining balance/term of an existing contract. A Contract Finance Agreement will turn your future, usage revenue into capital today for services or equipment usage yet to be provided. This monetization of your service/usage contract is accomplished by providing inducements to the end user through components of our unique proprietary structure.
Contract Financing is sometimes compared to receivable financing (factoring), since both are secured by receivables. However, factoring is a one-time financing of individual invoices or purchase orders once the service or equipment usage has been provided, and Contract Financing monetizes future contract payments over multiple months in the future. Each agreement is a custom designed to meet the needs of you (provider) and your customers (end users). Experience has shown that a strong relationship between the Provider and the End User is a fundamental requirement in order to put a Contract Finance Agreement together. This relationship is based upon the business trust the Provider has been able to build with the End User, and we are convinced that having a great product like Contract Finance goes a long way to enhancing this relationship as well!
Contract Financing is a very flexible financial tool that provides a number of capital options that are much less expensive and onerous than equity or sub-debt. As long as there is an equipment component, contract financing can be used to:
- Acquire equipment necessary for the fulfillment of a service contract
- Provide the needed working capital to run your business and/or develop infrastructure to facilitate the contract services
- Refinance existing equipment and improve cash flow
- Accelerate contract revenues
- Become an entre' to repeat business
The best fit for this approach is when the product and/or service being provided meet one of the following motivational criteria for the end user:
- Saves a significant amount of money
- Generates income
- Includes patented or proprietary technologies, processes or products not readily available from other providers
- Allows for off balance sheet treatment; since this is not a product with an inherent financing “rate”. The contract is for services provided. Therefore payment for those services is an expense. As equipment is neither being financed, nor is there ownership in the equipment, there is no traditional “financing cost”.
The applications where this product has worked successfully include but are not limited to the following:
- Service Agreements
- Warehouse Agreements
- Management Agreements
- Distribution Agreements
- And more . . . .
To see if Contact Financing could work for you, just answer the following questions. Are you:
- Providing a product and/or service under a fixed term contract of at least 24 months or more?
- Doing business with customers who are investment grade entities (or an essential subsidiary)?
- Entering into contracts for $1 Million or more?
If you answered yes to these questions then Contract Finance could provide you with the equipment and working capital necessary to capture some major customers and grow your business!
While Contract Financing deals are averaging close to $6 million per transaction, transactions currently in the works lead us to believe that this threshold will dramatically increase in the future. This form of financing could be extremely valuable to smaller companies that don't have the resources to buy equipment or adequate working capital necessary to fulfill large contract obligations. You should call us to separate the facts from the conjecture to see how Contract Financing could enable you to gain the business you deserve but were not sure you could obtain.