Why the Earlypay (ASX:EPY) share price is sinking 8% today

This payments company has just raised funds to fuel its growth…

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The Earlypay Ltd (ASX: EPY) share price is under pressure on Thursday morning.

At the time of writing, the payment advance company's shares are down 8% to 44 cents.

Why is the Earlypay share price tumbling?

This morning Earlypay announced that it has received commitments to raise $18.85 million via a placement to new and existing institutional and professional investors.

According to the release, the company is raising the funds via the issue of 44,897,846 new shares at a price of $0.42 per new share. This represents a 12.5% discount to its last close price.

Why is Earlypay raising funds?

The release explains that the proceeds of the raise will be used to fund the expansion of its new trade finance product while the company puts in place a new $50 million warehouse facility.

Once the proposed warehouse facility is complete, Earlypay expects the majority of cash to be released back onto the balance sheet. After which, that cash will be used for the repayment of its remaining expensive bonds and potential acquisition opportunities.

The new trade finance product is expected to enhance Earlypay's offering by supporting SMEs with a financing option for purchasing inventory. Then once the clients sell the final product to their customers, the loan converts to its established Invoice Finance product. Management notes that it builds on the record lending volumes Earlypay is experiencing in its established products.

Earlypay's CEO, Daniel Riley, commented: "Earlypay has continued its strong momentum in CY'2021, with our new Trade Finance product garnering significant demand from new and existing clients. Importantly, we expect the capital raise and product expansion to be earnings accretive in FY'22.

"The performance of the new Trade Finance product, combined with our record business lending volumes in established products, has provided strong validation for the Board to endorse a capital raising to support the new business pipeline while a proposed $50m warehouse facility to support the Trade Finance product is established."

Trading update

Earlypay took this opportunity to also provide the market with an update on its performance in FY 2021.

It has reiterated its FY 2021 guidance of NPATA of $8.5 million. It is then expecting NPATA of ~$12 million in FY 2022, before the net returns on the new Trade Finance product.

Mr Riley commented: "New initiatives are well advanced and include expansion of Trade Finance and broader promotion of Equipment Finance. The new initiatives leverage existing staff and technology capability and have the potential to contribute substantially to topline growth during FY'22 and beyond with little corresponding cost."

Despite today's sizeable decline, the Earlypay share price is still up 16% year to date.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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