One of the more fascinating aspects of the Transportation Intermediaries Association conference is meeting the wide variety of ancillary service providers who work with third-party logistics providers and freight brokerages and help them unlock high growth. Last week in Orlando, FreightWaves met two bankers, John Marrinson and Jason LeuVoy, who specialize in asset-based lending (ABL) to rapidly growing brokerages.
Brokerages often have constrained cash flows because they must pay their carriers before they are paid by their shipper customers. That squeeze can force brokerages to maintain significant cash reserves that could be put to use hiring new brokers, developing technology, or upgrading their offices. One option, of course, is taking on an equity investment, whether from private equity or venture capital, but that means giving up some control and ownership of the company. At the same time, young brokerages often don’t have the mature balance sheets to participate in traditional commercial lending.
Marrinson and LeuVoy at Wintrust Bank in Chicago provide freight brokerages with credit facilities worth up to 90% of accounts receivable. Generally, Wintrust is looking for clients who want at least $5 million of credit. The brokerage only has to pay interest on the amount it draws down, and can use the money for whatever it wants. The cost structure is determined by Wintrust’s evaluation of the credit-worthiness of the brokerage’s shipper customers, but, all in, can be 6-8% annually.
The bankers left Wells Fargo to set up a group at Wintrust completely focused on this type of lending to freight brokerages. At Wells Fargo, Marrinson and LeuVoy counted Arrive Logistics among their customers. We spoke to Arrive Logistics CEO Matt Pyatt about his experience.
“One of the biggest challenges in supporting our explosive growth over the last four years has been managing working capital,” Pyatt said. “Arrive has benefited from the strategic use of factoring agreements and ABLs to help finance our business. By doing so, it has allowed us to grow without bringing on excessive outside capital in a very cost efficient manner.”
At Wintrust, Marrinson and LeuVoy set up a credit facility for Edge Logistics.
“John and Jason understand our business and deliver solutions to the normal cash flow problems any freight brokerage experiences,” said Edge president William Kerr. “Wintrust has allowed us to continue to grow rapidly without selling equity in our business or raising outside capital.”
Marrinson and LeuVoy spoke to FreightWaves by phone about the services Wintrust offers freight brokerages.
“Looking at a logistics company that is seeing 50% or 100% growth or whatever it might be,” Marrinson said, “we understand the dynamics and what they’re trying to accomplish, and we try to support it by leveraging their receivables from their customers. A traditional line of credit wouldn’t be able to grow as quickly as receivables because the balance sheet would have to support it. We offer a product that is tailored to the type of growth these companies are seeing and the access to working capital they need to support that growth.”
“We have a deep understanding of the working capital needs of high growth 3PLs,” LeuVoy said. “Our clients are working with a financial partner who is truly focused on the industry. That makes us more nimble in the marketplace; we can very quickly evaluate what we can do for them and what their needs are.”
In additional to working capital lines of credit, Wintrust offers brokerages a full suite of traditional bank services including treasury management, letters of credit, and, eventually, traditional commercial lending. Marrinson said that many of his high-growth clients need to expand and upgrade office space, so Wintrust can help provide the letter of credit needs that support the build-outs.
“Because of the high advance rates on the collateral and no covenants,” LeuVoy said, “there’s no need to bring in any additional equity and dilute the ownership or partnership. We’re leveraging the debt side to limit dilution to the equity side, so our clients get to decide when is the right time to sell off a piece and bring in additional equity. Owners have more control with our credit facility.”