Consumer products companies face unique challenges with cash flow. They have significant upfront costs related to producing and shipping their products, combined with a long cash conversion cycle. Due to the inherent seasonality of retail, there is often a long lead time between purchases and orders hitting the consumer’s hands. And since retailers, especially the major ones, control the flow of products to the consumer, they are able to demand and get extended net selling terms that can leave a consumer products manufacturer or distributor low on capital just when they need it most.
Even the most successful and careful consumer products company may come up against a challenging situation sooner or later that requires extra capital. Many of these potential situations are positive and involve growth opportunities. Challenges can include:
- Gearing up for sudden increase in demand due to marketing successes
- Gearing up quickly for new large customers/orders
- High cost of developing new products
- Need for new technology to keep up with demand or enhance consumer experience
- Demands from customers for faster delivery
- Vulnerability to changing prices of materials
- Economic and market slowdowns
Whatever the reason that a company needs more working or investment capital, the cash flow issues indigenous to the industry can make finding smart funding more difficult.
Smart Funding = High Liquidity and Flexibility
Traditional lenders like banks have strict regulatory requirements that obligate them to manage risk through prescribed practices. Their strict credit and cash flow criteria may exclude newer consumer products companies, seasonal businesses and those in transition, in other words just the companies that need credit the most. Even if they are willing to lend to your company, you may find that they can’t provide the level of liquidity you need to take solid control of the situation and set your consumer products company on a solid path towards success.
In addition, banks build certain covenants into their loan structures that monitor whether a company’s financial condition continues to meet their standards. If, at any time during the loan term, your situation changes and you can’t meet the covenants, you risk losing funding altogether. This can be very disruptive during a time of transition or high growth.
The best funding for a consumer products company in transition is credit that isn’t based on the stability of your cash flow ratios, but is instead based on things you may have in abundance — inventory, equipment and machinery, and accounts receivable. Because the focus is on your assets rather than your numbers, non-traditional asset-based lenders (ABL) have more leeway in how much liquidity they can provide and how flexible they can be if your situation changes — positively or negatively — over time.
Lender Experience Counts Too
The more experience an ABL lender has in consumer products lending, the better they will be able to understand your situation, plans, and prospects. An experienced, empathetic lender can be more than just a source of credit. They can be a valuable financial partner in your transition, working with you to solve problems and get through challenges rather than giving you more to worry about.
At Gibraltar, our asset-based lending experts take the time to understand your company and its specific situation, so we can develop responsive and innovative solutions to your financing needs. We offer:
- Greater liquidity and flexibility than a traditional bank
- Financing for companies with limited operating history, negative cash flow, or sales fluctuations
- Senior secured term loans and revolving lines of credit up to $20 million
- Quick turnaround on loan approvals
- Access to senior credit decision-makers
If you are the owner or sponsor of a Consumer Products Company in transition, talk to a member of our experienced sales team to learn more about how your company’s valuable assets can help you attain the flexible financing needed to grow.