Asset-Based Loan A Construction Case Study
Author: Valerie Mellema
Date posted: 08.09.22

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, payroll costs go up. In addition, more materials and equipment are needed to get everything done. As things got busier, it was clear that financing would be needed to keep up with all the work the company was taking on.

 

How Much Money Was Needed?

It took quite a bit of research and brainstorming to determine how much money would be needed to handle the demand. On top of that, the company decided it would be better to have access to additional cash in case it was needed. After the numbers were calculated, it was decided that a $300,000 loan would be the best option. It would be enough for more employees, equipment, and material to handle new jobs as they were contracted.

Choosing the Right Financing Option

Since the company had been around for years, always had profits coming in, and was known for its great work, there were multiple financing options to choose from. However, they wanted to make sure they did things right. Instead of choosing a traditional business loan, an asset-based loan made a lot of sense. With robust accounts receivable, plenty of equipment, and lots of materials, the collateral was there to be used. Financing terms were good and interest rates worked well compared to other options.

 

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 take on more work with ease. Bringing in new employees, buying new materials, and purchasing equipment were all simple to do. In essence, this loan made the business capable of staying on top of its game. With more revenue coming in, the business could easily payback the loan as needed. Without an asset-based loan, they may not have been able to handle the new clients in the area. As it is now, they’re still considered 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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