Mike Semanco, President and COO of Hennessey Capital, outlines the fundamentals of working capital finance. Hennessey complements banks by providing financing to companies that do not yet have the risk profile that banks seek.
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Hennessey Capital is a commercial finance company that specializes in working capital finance. As we described at the start of this series, working capital is the difference between payables and receivables. Companies seek working capital finance because the pace at which they can collect on receivables lags the rate at which they must pay their bills. As we discussed with Bank of Ann Arbor, banks will provide working capital finance (also called receivables or inventory financing) to companies that have a good track record.
Hennessy provides working capital finance to companies that are earning revenue but do not yet have the track record to receive bank financing. Mike Semanco, President and COO of Hennessey, highlights the following aspects of Hennessy's operation in this segment:
- Hennessey bases its receivables financing decisions on the company's ability to collect on its receivables going forward.
- The cost of capital is higher with Hennessey because Hennessey is taking on more risk than a bank by working with companies before they have a bankable track record.
- Companies often come to Hennessey because they do not want to take on additional equity investment just for working capital. They would rather use that investment to build infrastructure for future growth.
- Hennessey works with venture capitalists and other sources of early equity to provide working capital finance.
In future segments, we will examine the mechanisms Hennessey has in place to provide working capital finance before a company might be eligible for a bank loan.
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