$170K for paint booth system. Company had tight cash flow in previous two years that provided inadequate debt coverage for Pentech’s new debt. However, the interim 10-month financials showed increased revenues and adequate cash flow for debt service. Turnaround of profits was supported by detailed and plausible explanation of changes in the business and how it increased sales, saved costs and improved profitability. PG had excellent FICO and good net worth in rental properties, which sufficiently offset underwriting weaknesses.
Debt Service Coverage Issue For New Income Producing Equipment:
$465K for packaging machines. Well-established business with steady growth, but low net worth and weak profits need additional equipment to support a major new contract. However, current cash flow inadequate to provide debt service for the new equipment. Obtained a copy of the contract along with projections that showed adequate income from the contract to provide debt service for the new equipment. To mitigate the lack of current debt service and weak financial condition, the company pledged a piece of paid-off equipment as additional collateral and made a 15% down payment.
Debt Service Coverage Issue Addressed By Replacing Inefficient Equipment:
$315K for new manufacturing equipment that will replace high maintenance, low productivity unit. Will also require fewer employees to operate. Obtained detailed explanation of projected cost savings that supported having adequate cash flow for the machine to pay for itself. Gave customer option of either making 20% down payment or pledging a CD or equity in real estate for the same amount with agreement that it could be released upon financials showing improved financial condition.