For many development companies, project-based revenue streams can pose considerable financial challenges. Whether capital is tied up in accounts receivable, a project goes sideways, or a business needs to invest in assets that won’t contribute to the company’s collateral, there are many scenarios that can lead to financial problems.
In the case of one growing Canadian construction company, the financial challenges the business initially faced were twofold: first, its bank wouldn’t lend the necessary working capital to finance the up-front project costs the business would regularly incur, and second, the business wanted flexible loan terms to adapt to changing opportunities. As a junior capital provider, First West Capital was able to deliver on both fronts with timely capital deployment and flexibility on repayment.
The team at First West Capital was introduced to the construction company in 2014 by a firm specializing in mergers and acquisitions, as the business was seeking a working capital loan to create capacity for additional projects. Construction businesses can carry a higher financial risk than some other types of companies, which can lead a bank to take a more conservative approach to its working capital needs—even with a strong business relationship.
For First West Capital, trust in management was a key factor in deciding to finance the request. The management team was able to convey their strength in project estimations and project management, and received a positive recommendation from its senior lender, as well as a strong personal endorsement from First West Credit Union CEO, Launi Skinner. By 2015, a working capital deal was reached, enabling the business to take on new contracts and stock its project pipeline.
On two separate occasions, in 2016 and 2017, management approached First West Capital to modify the structure of its financing agreement. In both instances, thanks to the high level of trust between the parties and the company’s demonstrated financial strength, First West Capital approved the proposed changes. This was of particular importance to the company’s CFO, who expressed appreciation for being able to quickly access capital to move on opportunities while keeping peace of mind that the repayment structure was manageable.
The relationship between the company and First West Capital remained strong, so when the management team approached First West Capital in 2019 to fund the buyout of a minority partner, the transition was supported by First West Capital. It was this support and mutual trust on both sides of the table that were critical factors in the success of this six-year relationship.
For the construction company, it meant trust that the company’s requests for changes would be seen through a lens of opportunity. For First West Capital, it meant trust in the ownership and management, and a willingness to take a longer-term outlook on financial returns.
The company continued to perform admirably and in 2021, the business was acquired by a large building materials company.
Whether your business is looking to Grow, Acquire or Transition, our team is here to support you. Get in touch.
