The Singing Machine Company entered into an agreement for senior secured financing with Fifth Third Bank. Under the agreement, Fifth Third will provide the company with up to $15 million in asset-based lending during the company’s peak shipping season and reduce to $7.5 million from January 1 to June 30.
The new credit facility is for three years and provides for borrowing against eligible accounts receivable and inventory. It provides Singing Machine with immediate cash availability on its eligible assets and is expected to provide the company with expanded access to working capital to operate and grow its business, including the funding of further technology innovations and prospective new revenue streams leveraging the company’s industry leading karaoke offerings.
In securing the new line of financing, the company is expected to recognize a significant reduction in interest rate on borrowings from approximately 15% under the previous facility to Prime + 0.5% (or 6.75%) with the new line of credit with Fifth Third. Although the company does not anticipate doing so, if the line were fully utilized, it would enable the company to avoid approximately $750,000 in interest expense when compared to the prior cost of capital.
“This is a significant financial milestone for the company and our team,” Gary Atkinson, CEO of the Singing Machine, said. “For several years, the company has utilized two separate senior lenders to support our accounts receivable and inventory under a segregated borrowing base. This has at times limited our access to critical working capital. It has also come at a higher cost of capital.
“Today, with a combined access to our entire asset base, Fifth Third was able to deliver a more flexible, cost-effective senior credit facility. Equally important, the cost of funds for this account is approximately half of what we were paying for working capital borrowings. This has the potential to save the company upwards of $750,000 annually, while better supporting our growth.
“In the past year, our company has demonstrated the ability to execute on very favorable equity driven capital raises. Now, this new credit facility demonstrates our ability to also access cost effective debt instruments. Overall, we are very focused on utilizing the lowest cost of capital available to our team to fund our technology innovations, marketing, and overall revenue growth plans.”
