By Joe Griffeth, New Business Relationship Officer, Asset Based Lending, TD Bank serving the Carolinas
As residents can attest, recent growth in the Upstate has been pronounced and can largely be attributed to the influx of corporations, additional job opportunities, and an attractive quality of life. From 2010 through last year, the 10-county region’s population increased 7.2 percent, to 1.46 million people, according to Upstate SC Alliance data. Greenville, the Upstate’s most populous city, has grown 13 percent over that same period, a jump that the U.S. Census Bureau at one point classified as among the fastest in the country. Forecasters estimate the region’s resident numbers will swell to 1.53 million by 2022, and to about 1.75 million by 2040.
As the growth continues, the region is seeing fast-paced development in the form of home renovations, new houses and apartments, and new commercial buildings. According to The Market Edge, residential building permits increased 134 percent from 2011 to 2016, while commercial building permits rose 42 percent over the same five-year period.
While this growth is welcomed and brings an increase in revenue, employment, and population, it also brings some challenges, specifically for the Upstate building industry, as its traditional financing cycle may not provide the working capital needed to manage the increase in demand for supplies. This, combined with the effects of tariffs and inflation, requires companies to find ways to maximize working capital during a time of growth. By engaging with a strong, strategic financial partner who brings industry expertise and has the ability to understand the collateral value and business goals, companies can effectively manage their financing needs.
For the Upstate’s building industry, the increase in demand for equipment and supplies requires immediate inventory investments to ensure they can accommodate anticipated orders and stay competitive in the marketplace. As customer demand continues to rise and these companies must buy and store more inventory, there is a need to finance this working capital. To help manage increased costs and the inventory demand, building-supply companies should look to asset-based loans, which offer a flexible and cost-effective credit line by using collateral to fund working capital.
Current economic conditions are adding to the financial strain. Rising inflation has increased the price of raw materials, including steel, aluminum, plastics, resin, and lumber. By May of this year, prices for construction materials had risen 5.9 percent year-over-year. Tariffs on steel and lumber have added additional pressure. According to the National Association of Home Builders, the tariff on lumber from Canada has added nearly $9,000 to the price of an average new single-family home since January 2017.
Asset-based loans have little or no financial covenants; instead, they rely on the collateral value to provide funding. In a growing business that experiences cyclical fluctuations, these loans can help companies manage through the cycles without disruption.
As the Upstate continues to experience growth and development, and building-supply companies look to meet the increasing demand for materials, companies should look for lenders that bring strength, scale, and experience, but also a personalized approach. These qualities let lenders provide customized financing to best suit borrowers’ needs. In addition, companies should choose lenders that can offer secured revolving lines of credit and term loans, which combine flexibility, convenience, and competitive pricing. Some can provide financing for up to 85 percent of the borrower’s available accounts receivable or of the appraised value of its inventory, which supports business growth.
Asset-based lending can be a crucial resource that helps companies in the building industry survive inventory-related challenges and periods of growth. As the Upstate anticipates an influx of more residents and businesses, companies should look to a committed financial partner that understands their business and is reliable and trustworthy to bridge their funding gaps by providing the working capital that building-supply companies need.
Joe Griffeth is an asset-based lending originator and relationship manager for TD Bank, providing customized financing solutions to middle-market companies. He lives in Charlotte, N.C.