Construction business factoring has been utilized in the construction industry for years, but the latest trends show that it’s on the rise. The recent economic depression and tightening of the credit markets has been particularly difficult on the construction industry. Trends indicate that along with having to focus on the new sustainable building and changes in building code standards, contractors are having cash flow problems. And because it’s hard enough to seek commercial financing because of the current economic condition, it is a good thing that contractors have other options when it comes to construction funding.
In recent times, there has been a boost in construction factoring among contractors, which provides the much needed cash flow to pay suppliers and meet payroll. With factoring, businesses are able to obtain cash based on their current accounts receivables. Typically, construction subcontractors have to wait as long as 30-60 days to get paid for their invoices. With construction factoring, on the other hand, they’re provided with immediate funds which are very helpful in addressing their current financial needs.
Recent availability of commercial loans has tightened significantly. This has a huge impact on the availability of business financing for construction industries. And even before commercial finance alternatives have gotten into this restrictive phase, construction business factoring is typically perceived as a risky move. The most significant risk factors for commercial construction finance normally include the following: Potential contractor liens are an added risk not present in commercial financing for existing commercial properties. In addition, a lot of construction projects go beyond the estimates - both in terms of timeline and budget.
Because of the deteriorated health of the construction industry, the risk of potential contractor liens becomes a more serious concern. However, the current problems observed in residential construction are often indirectly impacting the availability of construction funding for commercial properties because of the potential for contractor liens incurred during residential projects impacting the financial stability of contractors involved in both types of construction activity.
The real estate mantra in this scenario is quite fitting: “Location, Location, Location.” This is because non-local funding can be obtained to help in the construction of both existing and new properties. In some areas of the country, local commercial lenders have stopped virtually all new business financing and construction financing.
In the not-so-good business borrowing climate that we’re seeing today, it is important more than ever for small business owners to seek out an invoice factoring company which can discuss the feasibility of obtaining funding help outside of the local lending area. Contractors and related small businesses alike can benefit from single invoice, or spot factoring, stay in business, and in many cases, grow when using smart financing options.
To learn more about business factoring, check out the Interface Financial Group (IFG) through telephone number 877.210.9748.