Contract Finance Loan
Contract Monetization or Contract Finance Loan. What is it?
Contract Monetization Financing is the ability to obtain a loan based on a contract between an End User and a Provider wherin the contract provides for a stream of payments over time. The loan amount is determined by using a discounted present value of future cash flows generated over the term of the contract. Contract Finance is available across almost all scenarios and industries as long as these three components are present. There must be:
- An investment grade End User (S&P bond rating of BBB+ or better) or equivalent
- A Provider with a proprietary or unique product or service. We prefer there be an equipment component as well, but it is not always required.
- A contract between the Provider and the End User which contains a guarantee of a payment stream for a minimum of 2 years or more.
- The Provider offers a service to an investment grade End User.
- The Provider needs working capital and/ or equipment in order to provide this service.
- The Provider has a 2 to 15 year service contract with the End User.
- We can monetize the service contract.
- Provide working capital to pay overhead, purchase equipment etc.
- This product is at slightly above bank rates and is a lot more cost effective than offering equity or other types of debt.
For The Provider:
You have an investment grade customer/End User who needs or wants your product or service and is willing to offer you a payment stream for that product or service that is unconditionally guaranteed over a period of time. If you do not have the working capital necessary to fulfill the contract then this product may be the way to acquire that working capital without giving up equity or taking on more debt. (This is non- recourse to you because the debt belongs to the End User.)
How it works:
We will add comprehensive and proprietary language to the usage or management agreement containing the guarantee language required by the lender. The End User will then be billed the total Contract payment, directing payment to a lockbox where it is then bifurcated, with the debt service portion being sent to the lender, and any additional funds sent to the Provider.
Benefit to the Provider:
- Provider gets paid up-front.
- Provider avoids monthly billing to End User.
- End User pays one full Contract payment monthly.
- Terms match the length of the Service Contract.
- Rates – Bank Rates
Requirements & Qualifications:
- Minimum Deal Size $2 to $50 Million (More if the End User is strong enough to warrant a higher amount.)
- An assignment of an absolute and unconditional promise to pay
from an investment grade obligor.
- A consistent predictable cash flow.
- A date certain payment.
- End User/Obligor must be Investment Grade and/or Bond Rated.
- Service Contracts, SOW’s, PPA’s or Usage Contracts – workable.
- This program is NOT for ongoing service maintenance contracts.
- Repayment may be deferred for a period of time.
Some Examples of how it works:
A provider of medical laser equipment sells to physicians and ambulatory care centers on a long-term contract basis. We were able to monetize the future revenue stream from the contracts they have in place with the buyers.
A developer of proprietary web-based gaming software licenses their proprietary game to a major international online gaming company on a long-term contract basis. We used the future revenue stream as collateral for a long term loan.
A provider of telecommunication and video services has non-cancelable contracts with a group of hospitals. We use the monthly revenue stream as a base for advancing funds needed for working capital.
If you or your client have recurring non-cancelable, multiyear contracts or leases for a product or service, call today to learn how we structure and monetize deals that others can’t close.