Traditional lenders have long viewed the construction industry as too risky - and for good reason. If a contractor hits their supplier’s credit limit, they can use material financing to take on more projects without depleting their bank account.Įquipment can be repossessed if payments are missed It can be used in tandem with other types of financing, like trade credit. This type of financing is especially helpful when contractors are growing their businesses or taking on bigger projects. The contractor makes small weekly or monthly payments until they receive payment from their customer and can repay the full amount. The provider pays the supplier directly, and gives the contractor extended repayment terms - up to 120 days. Rather than paying in cash or maxing out a line of credit, the contractor can finance the entire material purchase through a third-party provider. This can often make them a valuable project partner, not just a financial resource.įor example, materials often make up 20-50% of a contractor’s total project costs. These lenders often work exclusively with the building industry, so they have a deep understanding of the nature of a contractor’s business. Today, more lenders are providing financing to contractors to pay for job costs up front with repayment terms that match the project billing cycle. These can provide a lifeline to contractors who need capital to grow their business, take on larger projects, or fill predictable gaps in cash flow. In recent years, companies have begun offering a wider variety of financing options built for contractors. Unfortunately, because of the financial risk inherent to the building industry, construction companies often have a harder time accessing traditional funding sources. In other industries, many businesses can finance their operations through traditional financial institutions, often with low interest rates. Yet contractors pay for labor, materials, equipment, and more well before they collect the funds necessary to cover their costs. In construction, the collection cycle can take weeks or months (not counting retainage, which could take years). These options can either provide a contractor with advance funds or allow them to defer payment for expenses. The risk & cost of contractor financingĬontractor financing describes the variety of financial options construction businesses can use to improve cash flow.
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