A common distinction between credit products is around their type and terms. We talk about Merchant Cash Advances, Factoring and multiple flavors of short term lending products from fintechs. But a better distinction may be around the importance of the relationship. And great lender-borrower relationships require that the lender truly understands the industry in which they are lending because they understand what drives the ups and downs in borrower performance.
Dwight provides Asset Based Loans (ABL) and their sweet spot is consumer brands (think beauty, food & beverage, apparel etc). Here’s a quick summary of typical terms:
- Lines from $1-20MM (sweet spot: $3-7MM)
- Advances 45-65% against inventory and receivables
- Interest: Prime + 1.5-6%
- Annual facility fee: 1-1.5%
- 2-year terms
- No forced amortization
- Light/No covenant package
When looking at borrowers, Dwight focuses on 5 main factors to determine the maximum availability:
- Gross margin
- SKU mix
- Number of SKU’s
- Sales channels
- Quantity of inventory i.e. Days Inventory
So, what are the benefits of building personal relationships v more programmatic underwriting?
- Lending through ups and downs with people to talk to. Because they understand the market and you in particular, you have someone to talk to about continued lending when you need it. This is opposed to more programmatic underwriting and emails to customer service or account reps.
- Case by case flexibility which could be advances for unforeseen opportunities or expenses, no forced amortization, no PG’s and light covenants which are easier to manage and meet.
- Stable capital base. Dwight has been lending since 2015 and has a terrific client roster. Their access to capital is likely more stable and predictable than newer fintech entrants.
Other considerations:
- Third Party Fees (Appraisal, Audit, Legal) are paid by the Borrower. Dwight works to keep these costs as low as possible through using appropriate vendors for these deal sizes i.e. you aren’t paying Gunderson level legal bills.
- It’s a revolver, so as you pay back, you free up new borrowings up to your undrawn credit limit.
- You do have to draw down minimum amounts, but this is flexible to seasons. They have to make money too.
- Security is a senior lien against the inventory. This senior lien extends to all assets unless there is already a property or equipment lender in place.
If you are looking for a $1 million to $20 million ABL, Dwight should be top of your list. And if you are scaling quickly and are in that in between stage of outgrowing the shorter term fintech lenders but not quite ready for the big banks, then there is a good argument to be made that you should add Dwight so you learn how the underwriting, covenant maintenance and relationship building processes work.
A the link below I model Dwight and you can play with fees and terms.
This is not a sponsored post.