Situation
An underground contractor had tripled annual sales during the previous four years. As the business expanded, the owner needed to purchase a lot of new equipment to support its growth. In addition, he also rented several key pieces of equipment. Even though his business was successful and growing, the rapid growth required a substantial amount of cash and money was constantly tight. He had to juggle payroll, vendors, suppliers and multiple loan payments. His business success had actually become quite stressful.
Challenge
The business owner realized he needed a solution that could help to smooth the ups and downs of his finances and reduce his stress. Many business owners are surprised to discover that business growth can be quite expensive. It is tempting to focus on the increased sales and revenue, and not the investments required to deliver on those commitments.
Solution
It was determined that an SBA 7(a) loan for $4.65 million and an expansion of his existing line of credit to $350,000 would stabilize his financial situation.
The contractor had 18 different monthly payments. The SBA loan was used to refinance all of the company’s existing loans, existing capital leases and existing operating leases and provide the company capital to purchase the key pieces of equipment it was renting.
Based on a calculation of the equipment rental expense and frequency of use, it was more cost-effective to buy the equipment and finance it over a 10-year term. The favorable terms of the SBA loan saved the owner more than $28,000 each month – and he only had to manage one payment, not 18!
The SBA loan also added more than $250,000 in working capital to support the business’s current and projected future growth. Expanding the line of credit gave him quick access to funds for future needs that may arise on a short-term basis with new projects.
Additional Coronavirus Support and Results
Because of the timing of the closing coincided with federal coronavirus relief efforts, the contractor received six months of P&I payments from the SBA to hedge against the uncertain economy. The payment relief provided much needed additional resources to further stabilize the company’s financial position, reduce leverage and increase the company’s bonding capacity, which is advantageous for procuring certain types of contract work.
The business owner now feels more much confident in his financial position, as he should now have reliable access to working capital for the next five years and much better monthly cash flow.
