Hermes Capital provides asset-based lending solutions for complex scenarios. Complex scenarios could include varying obstacles, but always require out of the box thinking to find a solution.
For over 10 years, Hermes has been successfully helping businesses transition and grow in tough times. Now, more than ever, capital raising is an integral part of business planning.
This month’s case study shows the importance of the availability of capital to continue an upward trajectory for a construction company when purchasing new machinery.
A “Special” Transitional Case
Purchasing equipment in a secondary market can be both lucrative and problematic. If done astutely, clients have the ability of picking up high quality assets that are well below market value. However, financing options are severely diminished when not purchasing “new” items.
A client was referred to Hermes to fund the purchase of machinery that would complement their current offerings. This particular asset would allow them to complete the full scope of work within their major contracts – without subcontractors. In turn, this would increase both sales and margins.
Trading since 2018, the business had strong profitability and growth, but financial management was lacking. Subsequently, a large ATO balance had accrued, affecting the availability of credit.
The gap in the market for commercial finance
In this scenario, a mixture of ATO debt and the second hand nature of the equipment had ruled out traditional sources of equipment finance.
The client had a Debtors Ledger, spread between multiple construction clients, but the progress claim nature of these invoices and contracts that accompanied them presented their own challenges.
Asset-Based Lending Solution
The broker identified the opportunity this asset presented to the client, but also highlighted the complexities of the transaction. The lender options were scarce for an equipment finance only lend, due to perceived company risk.
The Hermes solution? A facility including a term loan of $150,000 that addressed the equipment purchase, along with a $700,000 debtor finance facility addressing the ATO arrears and on-going liquidity.
Hermes is an investment fund – not a bank, so has the flexibility to structure the right deal for individual circumstances.
The purchase of the machinery has now improved the company’s 12-month forecast with accelerated growth expectations. The ATO arrears are now addressed with minimum monthly payments and lump sums being paid directly via the debtor finance facility. This liquidity has also improved the company’s ability to maintain their current obligations.
On the surface, the figures presented showed various issues that many lenders would classify as “high risk”. Yet, the underlying fundamentals of the client were strong. The director is optimistic about being self-funded by 2021.