CASE STUDY
The Client:
A Midwest-based injection molding and machining company operated at the intersection of multiple high-stakes industries, serving industrial, defense, and medical sectors with precision-manufactured components. Under private equity sponsorship, the company had built a reputation for quality and technical expertise that attracted major new contracts across its diversified customer base. The business model required substantial upfront capital investment in specialized equipment—injection molding machines, CNC machining centers, and EDM wire machines—to fulfill production requirements before revenue recognition. When multiple new customer purchase orders arrived simultaneously, the company faced the classic growth paradox: significant new business that demanded immediate capital deployment while creating a six-to-seven-month lag before those contracts would translate into increased EBITDA. The PE sponsor recognized the strategic value of these new contracts but needed a financing solution that would preserve balance sheet liquidity during the critical ramp-up period.
The Challenge:
The company confronted a perfect storm of timing mismatches and liquidity constraints. Having already prefunded down payments on various machines to secure production capacity for the new contracts, final installation payments were now coming due precisely when cash reserves were most strained. The six-to-seven-month gap between equipment installation and revenue recognition created an acute working capital squeeze, particularly problematic given the company’s already tight liquidity position resulting from softer demand and inventory destocking pressures that had accumulated over the previous several years. Traditional lenders viewed this scenario skeptically—a company with compressed liquidity seeking to finance equipment for contracts that hadn’t yet impacted the P&L represented exactly the kind of forward-looking risk most banks avoid.
Compounding these challenges, the PE sponsor required a capital lease structure to capture EBITDA benefits critical to their investment thesis and exit strategy. Most equipment lenders either couldn’t or wouldn’t provide capital lease structures at competitive pricing, particularly for a company experiencing temporary liquidity pressure. The sponsor needed immediate cash reimbursement to restore balance sheet flexibility, not just financing for future equipment purchases. Perhaps most critically, any financing solution had to be executed quickly enough to prevent disruption to production schedules and customer commitments across multiple demanding industries where delays could jeopardize valuable new relationships.
Solution:
First National Capital recognized that beneath the apparent liquidity strain lay a fundamentally strong business winning contracts from prestigious customers across defensive, recession-resistant industries. Rather than focusing on trailing EBITDA metrics that didn’t yet reflect the company’s growth trajectory, FNC underwrote the strategic value of the new purchase orders and the company’s proven operational capabilities. Understanding that the PE sponsor’s capital lease requirement wasn’t merely a preference but essential to their value creation model, First National structured a competitively priced capital lease solution that delivered both the required accounting treatment and the immediate cash relief the company desperately needed. Over multiple transactions, FNC approved cumulative financing exceeding $6.2 million covering injection molding machines, CNC machining centers, and EDM wire machines—nearly all funded as cash reimbursements directly back to the lessee’s balance sheet rather than traditional vendor payments. This approach immediately restored the working capital the company had deployed for down payments, providing the liquidity bridge necessary to weather the revenue recognition lag. The capital lease structure preserved EBITDA impact for the sponsor while FNC’s relationship-based underwriting and flexible execution timeline ensured production schedules remained on track. The multi-transaction partnership demonstrated First National’s willingness to support growth through complexity, recognizing that temporary liquidity pressure accompanied by strong new business represents opportunity rather than risk for lenders capable of understanding the bigger picture.
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