Improving Cash Flow and Getting Capital
If you’re a contractor, you know how long it can take to get paid for a job you did. Oftentimes, you won’t receive a penny for the work you’ve done until after many months have passed since the completion of your project. With many property owners refusing to pay their construction bills, the contracting business is notoriously difficult to get funding for by major banks and other lending institutions because they often consider the business too risky.
While this can be discouraging, you shouldn’t give up on getting the financing you need. In this article, we will explain the basics of contractor financing while presenting the options available to contractors looking to improve cash flow and get the money they need to close a sale without having to worry about paying for it out of pocket.
What is Contractor Financing?
Contractor financing is the process of managing the flow of cash for projects and the business as
a whole. As a contractor, you know that construction is a business that relies on credit. With
that said, the collection process can take a long time—sometimes weeks, months, or even
This delay in payment can make it difficult for traditional lenders to approve contractors for loans. This is unfortunate if you consider the fact that construction businesses pay for labor, materials, and construction equipment well in advance of receiving payment from the client who hired them. With so many expenses, finding the right financing option is essential to have enough cash on hand to complete the jobs you’re hired for.
Like with any type of financing, getting approved for a loan will come down to your creditworthiness, however, because of the nature of the business, many lenders will look at a lot of other factors other than credit making it even more difficult to get approved for a loan as a construction business.
Traditional Financing: What Lenders Look For
If you decide to go the traditional route of getting financing from the bank, then be prepared to provide your financial statements, business credit history, payment history, and personal credit history. All of this documentation will provide the lender with a better picture of your situation, and they will be able to make their determination from there.
Other Construction Financing Options
If you aren’t approved for a loan by a traditional lender, there are other options available. Many
contractors use credit cards to pay for materials, equipment, and other expenses. While this is
an easy way to get the cash you need quickly, it is important to understand that credit cards
come with high-interest rates that can cause your bill to quickly go up over time.
Invoice factoring is another popular financing option for those who aren’t approved for a traditional loan. To receive this type of funding, you will essentially have to sell your current accounts receivable statement in exchange for the cash you need upfront to complete another project you’re working on.
Having gone over some of the basics of construction financing it has become clear that getting financing for your construction business is not always easy. However, there are ways to get the money you need if you have a good track record or have a steady flow of invoices that can be traded for cash. A steady flow of payments can also assist by alleviating the need to utilize financing or factoring organizations. Nationwide Notice can help you secure that steady cash flow by simply ensuring you have control over your money.Nationwide Notice partners with companies of all sizes, whether you are a General Contractor, Sub Contractor or Supplier. We utilize the existing lien laws as leverage to ensure payments are received timely, so your need for financing can be minimized. Get paid on your terms and take control of your future. Learn more about how Nationwide Notice can help you here, or learn more about our general services here.