“You need money to make money.”
Everyone has heard of that saying more than enough times, and it’s very true when it comes to running a small business. If your business is short on working capital, how else do you expect to grow? We recently came across another scenario with a home builder that specialized in building individual homes. Here are some of the obstacles this business was coming across:
· They had four homes sold and escrow would not close for another 30 days
· Needed to buy two more parcels to build their next set of homes
· Needed to buy some materials to start the build on those two homes
After discussing the situation with this business owner, we soon found out the business had enough working capital in their operating account to cover two months of payroll for their crew and their other monthly expenses, which totaled to approximately $60,000. They normally have one or two properties in escrow at any given time. But in this unique case, they had four homes in escrow because some of the home buyers had difficulties getting their loan approved thus holding up the closing on two of the four homes. One of the largest dilemmas they are experiencing would have to do with acquiring their next home build locations. Because of the limited amount of vacant land on the market, they needed to close escrow on two lots before their escrow expires. The escrow on those two lots would expire in two weeks, and they wont have the funds to buy those two properties until at least one of those four homes closes escrow which is not for another 30 days. Once they have the two lots, they aren’t able to start construction until they have materials. Typically their providers for material give them a line of credit, but once projects are completed they need to be paid within 30 days. Since some of the homes they have sold and are in escrow have been a lot longer than 30 days, their suppliers will not extend any credits on new projects until they are paid on the older projects. So they need to either pay off the old debt or use other capital to buy the materials for the new projects. Either way, they didn’t have the funds to do either at this time.
This business had several options:
· Wait 30 days for the homes in escrow to close and use the proceeds from the sale
· Let go some of their employees & crew to save on payroll
· Find a way to get a working capital loan to keep their employees and start the new project
A Working Capital Loan Will Solve Their Dilemma
It was crucial to this business that they kept their team intact, and continue to start the new project to meet the housing market demand. They needed $100,000 to keep their business running smoothly, and they needed the funds in less than two weeks. They had already contacted their bank, and of course found out the process were going to take longer than the two weeks. That’s when they were referred to our company and soon found out, that First Capital Business Finance could provide them with a working capital loan, and the funds would be available a lot sooner than their two week deadline. Though the cost for our working capital loan was a little more than what was expected, but after doing the math they were still very profitable. They were able to keep their employees, they were able to start two new projects, and they would be able to pay off this short term business loan once their other properties closed escrow. After discussing this with the owner a little further, we found out he’s come across this scenario at least once a year. Now that the owner knows we can fulfill their needs, we will be on the top of their list.
If you’re interested in hearing more about our business financing programs, please feel free to call First Capital Business Finance 888-565-6692 and one of our loan experts will be happy to answer any of your questions.