The client is a family-owned recycling and materials recovery business in the North Okanagan, more than forty years in operation, working out of an industrial site it owns through a holding company. The current owner bought the business from his family two decades ago and has steadily widened what it will take in, from paper and cardboard to small electronics, power tools, exercise equipment, non-ferrous scrap metal, Styrofoam and flexible packaging. Revenue has held above $4,000,000 for five straight years.
The business's constraint was space. The site was at capacity, and every opportunity in front of the business needed more of it: commercial food scrap processing, a municipal curbside contract it was bidding for, Styrofoam condensing. Then the lot immediately next door came up for sale. Buying it was the obvious move, and the owner was candid that he did not have the time to run a financing process around it himself. That is what he engaged us to do.
What we asked lenders for was unusual in one respect. Rather than mortgage the lot being bought, we asked them to take security over the two adjoining properties the holding company already owned and to advance against the equity in those. Keeping the new lot unencumbered mattered to the client, because what he would build on it was not yet settled and he did not want to need the bank's consent in the middle of deciding. Most lenders would rather hold a mortgage over the asset their money is buying.
We took the request to our lender network and brought back two offers. The bank that funded agreed to the structure.
Greater flexibility: the lender's mortgage sits over the two existing properties only. The lot purchased with $900,000 of its money carries no mortgage at all. The equity takeout was also set up as a revolving line rather than a term loan, so the client can draw it, repay it and draw again as projects come up, instead of borrowing a lump sum and paying it down on a fixed schedule. The personal guarantee narrowed to the owner alone, where the request had contemplated guarantees from both him and a family member who co-owns the holding company.
Additional leverage: every facility came in at or above what we asked for. The purchase facility was set at $900,000, comfortably covering the price. The equity takeout line came in at $700,000, a hundred thousand above the request. The operating line doubled, from the $100,000 we asked for to $200,000, and the corporate card doubled as well, from $25,000 to $50,000. The mortgage was amortized over twenty-five years, where we had qualified the request conservatively at fifteen, which leaves materially more of the business's cash flow available for the expansion the purchase was meant to enable. Across the two properties pledged, the facilities sit at 56% of assessed value.
If you are looking at the building or the lot next door and want to know what it can be financed against, that is the kind of structuring question worth asking before you write the offer. Start with a 15-minute commercial debt review and we will benchmark pricing, covenants, guarantees, collateral and available leverage against what we are seeing in the market right now.
