Pandemic impaired financials no obstacle to funding new civil contracts

The contract that would “make good” pandemic losses

The husband and wife owners of a civil contracting business in Victoria – like many – saw their business suffer during the pandemic. Many projects in their region were put on hold. Two years of restricted revenue had depleted their business cash reserves.

As pandemic restrictions eased, tender opportunities began to make their way to the kitchen table (the “boardroom table” of many family businesses). These opportunities would help restore the business’ cashflow and personal wealth of the owners. They won one lucrative tender in particular, for a large project involving the upgrade of a major piece of infrastructure over several years.

Loan serviceability adjusted for Job Keeper

Historically the owners relied on the business’ internal cashflow for working capital, but they now needed to borrow in order to fund the newly expanded workforce.

The owners had equity in a property and unencumbered vehicles, and their bank considered providing the needed support.

However, the bank rejected their application for two reasons: the first was that their ATO portal showed arrears; the second was that the business was deemed to be trading at a loss when revenue was adjusted for Job Keeper.

These same issues precluded their broker from placing the funding requirement with equipment financiers. Traditional debtor financiers were not an option either as the business billed via progress claims – typical of the industry.

Letter from the ATO

Then a further urgent complication arose: the business owners received a notice from the ATO seeking payment of arrears, and placing the business – and their personal assets – in jeopardy if not addressed.

Now, not only were they at risk of losing the new contract, they were at risk of losing the business altogether.

The Funding Solution and the Return to Prosperity

After being introduced via a business advisor, Hermes was able to provide a term loan facility secured by the equity in equipment and the owners’ personal property to meet the demands of the ATO.

Hermes also provided a progress claim debtor financing facility to provide the day to day working capital needs, including wages, fuel and equipment leases.

Outcome

The owners now maintain a more optimistic view of the future with their business now able to meet the growing cash flow needs of its expanded payroll, and on good track for a profitable 2022.