Asset-Based Loan A Construction Case Study
Author: Valerie Mellema
Date posted: 08.15.24

A large construction company on the east coast has been building commercial properties for many years now. They’re known for excellent work and fantastic customer service. Their many years of experience have made them a popular choice when building new properties. This has allowed the company to grow and take on even larger projects. Overall, the business has done well and brought much-needed services to the area. However, growth can lead to the need for financing, which is exactly what happened here.

Why Financing Was Needed

As demand for retail buildings increased, this construction business (and others in the area) were busy and expected to stay that way for a good long while. This is a good thing in terms of revenue and success for the building. However, the influx of customers also meant a need for extra money. When more projects are occurring, the company experiences an increase in payroll costs. As things got busier, the company realized that they would need financing to keep up with all the work they were taking on.

 

How Much Money Did They Need?

The company conducted extensive research and brainstorming to determine the required amount of money to handle the demand. Additionally, the company chose to have access to extra cash if necessary. After calculating the numbers, they made the decision to opt for a $300,000 loan, which would cover the expenses of hiring more employees, acquiring equipment, and purchasing materials to handle new contracted jobs.

Choosing the Right Financing Option

The company’s long-standing presence, consistent profits, and excellent reputation opened up multiple financing options to choose from. However, they aimed to ensure their approach was precise. Instead of opting for a traditional business loan, they found an asset-based loan to be a more logical choice. They had robust accounts receivable, plenty of equipment, and an abundance of materials, offering ample collateral. In comparison to other options, the financing terms were favorable, and the interest rates aligned well with their needs.

 

Why an Asset-Based Loan Was the Best Choice

In many cases, an asset-based loan is easier to obtain than other loans. The security was found in the assets the business had rather than being focused solely on credit history. Plus, these loans are very flexible as long as the cash is used for business purposes. Since the loan is related to your assets’ value, funding can potentially increase as the assets grow. In addition, these loans have lower costs than many other options.

How They’re Doing Today

With the money from the asset-based loan, the company could easily handle more work. They easily hired new employees, bought new materials, and purchased equipment. This loan enabled the business to stay on top of its game. With more revenue coming in, the business could easily pay back the loan as needed. Without an asset-based loan, they might have struggled to handle the new clients in the area. As it is now, they still hold a reputation as one of the best in the business.

About The Author | Valerie Mellema

Valerie has over 16 years of experience as a professional writer of blogs, eBooks, articles and press releases, with a focus on finance and alternative lending. Valerie resides with her family in Texas and is passionate about her horses.

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