One of the hardest industries to be in is the construction business because there can be a number of obstacles in your path whilst waiting for payment for work completed. In fact, it is especially difficult for subcontractors because they are dependent upon payment from the general contractor who, in turn, may be awaiting payment from the end client. If this is slow in coming, everyone involved in the project can suffer from a lack of cashflow. Are you a subcontractor with multiple employees and bills waiting to be paid? Don’t despair just yet as there are a few things you can do to improve finances whilst waiting for your invoices to be settled.
Construction Factoring – The Fast Track
If cashflow is an urgent problem, you’ll need a fast track solution and that would most likely be to seek out a form of financial assistance called construction factoring. This is similar in concept to Invoice Factoring or Confidential Discount Factoring except it is tailored around a B2B model rather than a B2C model as most other types of factoring are set up.
Firms like Touch Financial are able to offer loans based on what you have outstanding on the books, waiting for payment from the general contractor. For larger subcontractors with a dozen or more workers who will need to be paid and materials to be ordered before starting the next job, this will be your quickest solution because the paperwork and red tape is a much, much faster process than when applying for a conventional business loan.
Business loans – Conventional Business Loans
If you are not experiencing an immediate cashflow problem, you might want to consider a conventional business loan but these are not as easy to acquire and can take a long period of time you simply don’t have. Typically based on assets you have to put up as collateral, it may take literally months to have everything tallied, valued and tons of paperwork in order so that you could even begin to qualify for a conventional loan from a lender.
Banks need to know that should you default on your loan you will have enough collateral to repay, in full, what you are borrowing now to keep your company afloat. Rates will most likely vary from lender to lender, and the entire process may take longer than you have to wait. If you are having trouble collecting from the general contractor, even if you are solvent today, are you in a position to wait months before payment is made? By the time you received a conventional business loan, you could be out of business!
Factoring in any form, be it Invoice Factoring, Confidential Discount Factoring or Construction Factoring is going to look at what you have outstanding on the ledgers. You can borrow some or all (in many cases) of what is owed to your company by general contractors and the entire process is as quick as being able to assess and tally what is owed to your company. Whether or not you are in a bind today, with cashflow at a relative standstill, can you afford to wait months before money begins coming in? Will you last that long or is there a potential to suffer serious consequences? The type of financial help you apply for is typically based on how quickly you need funding. That’s the bottom line.
Kidal Delonix is a contributor to Mr. Hoffman's blog. The views and opinions are entirely his/her own and may not reflect Mr Hoffman's views.
