Financing for a New Building

A roof truss manufacturer originally contacted the SBDC in late 2000, looking for assistance to obtain financing to build a larger facility for his operation. At that time, he had been in business for about 3 years and had been profitable all but the first year. His problem was that the facility that he was renting was just too small. He had only about 3,600 square feet of production space and no space whatsoever for lumber storage. In order to grow to meet his ever-increasing demand, he needed a bigger space. The SBDC assisted the company in preparing a financing proposal in which he requested $250,000 to build a 10,000 square foot building.

The only weak part of the business plan was personal equity. He did own the lot where he wanted to build the new facility and he had some capital in the business but when he presented his proposal to the lender, they were only willing to lend him 60% of the projected "finished product" appraised value. The owner came back to the SBDC and they helped him to re-evaluate the total project costs. There were some areas where he could save some funds by doing some of the construction work himself. He also was able to get some family members to assist with plumbing, wiring and finish carpentry. However, SBDC analysis showed that he would cut severely into his operating capital, which might jeopardize his operation’s ability to maintain positive cash flow.

He took the 60% deal and moved into his building in the fall of 2002. In early 2003, he called the SBDC to see if we might be able to assist once again. It was evident that cash flow had indeed gotten very tight but throughout the construction period and during the move (which caused a 3 week shut down), the company had somehow remained profitable. A commercial appraisal was done and it came in higher than what the bank had originally projected prior to construction. The owner decided to refinance his loan and take some equity out of the building to help catch up on some payables and get his operation properly funded again. The SBDC once again assisted in building projections and put together a financing proposal for, once again, $250,000, the same amount originally requested nearly two years before.

This time, the bank approved the deal and the company was able to take advantage of a much better interest rate and also get the necessary funds to enable his company’s success. Lesson learned: there’s one thing worse than getting turned down by a bank - getting approved for a reduced, inadequate amount.