The Anatomy of a Deal: Unveiling Successful Collaboration in Construction Financing

Altriarch details a recent transaction with a construction factoring company and how collaboration is essential to success.

Navigating the landscape of the construction factoring industry involves a distinct set of challenges, particularly in verifying project completion milestones to facilitate financial transactions seamlessly. Unlike conventional industries that are characterized by tangible products or singular service deliverables, construction projects unfold in incremental phases, often involving multiple parties concurrently. This fragmented process poses a formidable challenge for factoring institutions that focus on the construction industry and demands precise verification of the project completion status prior to disbursing funds.

According to Danielle Brown, Managing Partner and Co-CEO of Altriarch Commercial Finance (“the lender” or “Altriarch”), the concept of project verification emphasizes the imperative nature of creating a sealed ecosystem for managing risk, which is proprietary to each construction factoring institution. Brown adds that the key to success is establishing quality assurance protocols to mitigate project delays caused by miscommunications, work quality expectations, material inaccuracies, supply chain disruptions or labor shortages.

The anatomy of a deal can certainly be complex, requiring multiple institutions and subject-matter experts to facilitate various components of the transaction and satisfy all parties involved. That said, collaboration is essential, with lenders, borrowers, the borrowers’ clients and legal experts coming together to intimately understand the deal and find a solution.

The Power of Strategic Partnerships and Operational Precision

Altriarch recently facilitated and closed a $15 million funding arrangement for a Tennessee-based construction factoring company (“the borrower”). The borrower provides services ranging from receivables financing to material purchase programs for contractors nationwide. The borrower, with over 25 years of experience in construction financing and a deep roster of in-house industry experts, has built an operational framework around efficient underwriting processes, which includes on-site decision-makers, to enable expedited funding within days. Part of this operational framework includes capabilities that ensure financial control and due diligence at the underlying debtor level. With a cash control system via a lockbox account and daily sweeps, financial transparency is a key focus. In addition, the borrower sets verification limits and maintains detailed client approval records, resulting in sound invoice and payment verification procedures for optimal financial health and risk management.

In early 2023, the borrower began seeking improved funding structures to replace its senior line with a large regional bank, as well as its outstanding mezzanine facility with an investment advisory firm. Altriarch played a pivotal role in restructuring the borrower’s outstanding debt and ultimately closed on a $15 million senior secured revolving credit facility. Through detailed underwriting, which encompassed assessing management strengths, analyzing client portfolios, and ensuring lien compliance efficiency, Altriarch was comfortable with engaging in a long-term partnership with the borrower.

While in the final stages of the underwriting and legal process, the borrower had an opportunity to close on a factoring line with a mechanical contractor located on the West Coast, but faced funding constraints since the new facility with Altriarch was not yet in place. Given Altriarch’s commitment to a long-term partnership, the team did not want the borrower to miss out on the deal. After co-underwriting the deal with the borrower, Altriarch decided to participate in the facility and provide $2 million in capital alongside the borrower. Altriarch’s capital enabled the borrower to secure the new client and close on the facility. Subsequently, post-initial funding alignment, the borrower strategically transitioned its portfolio to the new facility over several months, fueling seamless client transitions. The partnership’s success was further supported by attorney specialists who provided legal insights, optimized debt structures and ensured compliance measures were met throughout the entirety of the funding processes.

This collaborative effort, emphasizing lender partnerships, client integration, and portfolio expansion, underscores the borrower’s dedication to operational excellence and enduring success. The successful conversion was made possible through cohesive collaboration among multiple stakeholders who were able to garner a deep understanding of the intended results.

Driving Innovation and Sustainable Growth in Construction Financing

Altriarch recognizes the ways in which this borrower sets itself apart in the world of construction financing. By prioritizing customized financial offerings and meticulous risk management practices, the borrower excels in delivering tailored solutions to its clients. Brown went on to say:

“By conducting comprehensive credit evaluations of debtors through Experian reports and detailed Project Information Sheets, the borrower ensures a robust risk management framework through a strategic partnership with a third-party that streamlines lien compliance procedures, ensuring prompt payment upon project completion notification.”

– Danielle Brown, CFA, Managing Partner and Co-CEO of Altriarch Commercial Finance

As the partnership evolves, Altriarch continues to support the borrower’s expansion, demonstrating a shared vision for innovation and industry leadership in construction factoring solutions.

In a strategic move towards sustained innovation, the borrower is collaborating with Altriarch to increase the current facility from $15 million to $25 million, as the borrower is seeing increased demand in supply chain financing opportunities. Supply chain finance, characterized by extended payment terms to suppliers, presents a strategic opportunity to streamline cash flow and bolster financial adaptability in the construction sector. Altriarch’s backing not only drives the borrower’s expansion in tandem with its clients but also sparks the introduction of cutting-edge financial products. The partnership with Altriarch remains instrumental in steering the borrower towards long-term success while fortifying the financial well-being of construction businesses nationwide.