Construction Working Capital Struggles

In the previous post, John Sawyer, owner of Construction Finance, shared about growing as a contractor or small business and experiencing the ‘best of times and the worst of times.’  Navigating how to keep the funding in place to keep the employees paid, vendors paid, subcontractors and suppliers paid.  He talked about banks, working capital loans and selling invoices.  Listen as he shares more detailed information about selling invoices.

Banks are very important.  Use your bank for low interest, long term loans, to pay for real capital.  Use banks to pay for buildings, a backhoe, trackhoe, crane or horizontal digging equipment.  Any equipment that you can buy with any low interest bank loan.

What happens when you get that equipment bought and your crew has grown?  Sometimes that bank line of credit is maxed out.

For instance, I had a client this week, a smart, smart client.  He has a nice line of credit at the bank, about $150,000.  However, he bills about $250,000 a month worth of business.  He can cash flow that amount but overnight he was awarded another $100,000 contract on top of his normal $250,000 monthly business.  He said, “I can’t go back to the bank and ask for an increase in a line of credit. This is a 45 day long job and they’ll never get it approved by then.”

This is a situation where Construction Finance and invoice factoring is the answer.  He needed to factor his accounts receivable and Construction Finance can purchase invoices in the construction realm for 1.5%, 2%, 3% and sometimes 4%, depending on the project.  So he was able to take that project and grow his gross and net revenues by selling his invoices and continue to keep his bank relationship strong.

While most contractors panic when they have that situation.  $350,000 worth of cash flow problems.  But as you can see, he doesn’t have $350,000 worth of cash flow problems, he only has $100,000 worth of cash flow problems.  Construction Finance was able to purchase those invoices for that additional $100,000 worth of work that he does.  We can purchase them at a rate of 1.5%, 2%, 3% or possible 4% depending on the particulars of the job.

So look at your projects, and before you panic with your line of credit or your working capital you’re using now, look at the amount that’s really putting you over your comfort level and consider selling those invoices to us at Construction Finance.  Nothing will change.  Your contracts don’t change, we don’t interfere with your relationship with your general contractor or your customer.  We advance money on that invoice after work is completed and then we are the ones who wait to get paid from your customer.