When you are a smaller business, it is often difficult to seize a new opportunity. Entering a new marketing, taking on new services, or buying a large inventory of products to fulfill new customer’s order is not easy when you can’t get a traditional loan and you don’t have any investors.
So, how does a midsized merchant or smaller take its business to the new level without access to capital? Large project financing is a way to access capital to turn a big new opportunity into a reality.
Large project financing is an innovative, long-term type of loan that can be used to pay for infrastructure and other projects by using multiple types of loans throughout the different phases of a contract or project. To ensure the security and repayment of the loan, the lender looks at the projected profits that will be earned by a specific project. Basically, when your business is approved for project funding, the revenues from your upcoming project is used as collateral to give you access to working capital and commercial lending.
How Large Project Financing Works
With large project financing, proceeds from the loan or progress payments are paid out to you as you reach certain project milestones or sales levels. Having the funds dispersed this way give the borrow access to money they need throughout the completion of the project timeframe.
Merchants that are often turned down for traditional loans can borrow money through large project financing because it is based on more flexible underwriting requirements.
Financing often is granted based on a merchant’s business plan and its quality, financial statements, and its reputation and expertise in its industry. Once a lender determines your business’ current and project cash flows, it will develop a contract for the loan repayment terms. When each payment is due, revenue is split between you and your lender. The split is based on the terms of your agreement.
Businesses that Benefit from Large Project Financing
Large project financing can be helpful to merchant in all types of industries that may not have a good credit history or cannot meet traditional lenders’ underwriting requirements.
Large project financing works for business that:
- Want to Upgrade Equipment or Make Infrastructure Improvements: New software, state-of-the-art technology, and new equipment upgrades can make or break a smaller business. Unfortunately, most lack the funds needed to make these investments. Service industries, especially, can win big from project financing if they can prove to a lender that specific improvements to infrastructure or equipment upgrades can lead to more profits.
- Want to Enter New Markets or Expand Service and Product Offerings: Access to more money can help you dramatically boost your business’ sales. By adding a new service or increasing your product offerings, you are sure to bring in more sales. Since it is a more flexible funding option that a traditional small business loan, project financing also can be reach a new demographic or geographic area or enter a brand new market. Any of these examples work well with project financing because funding is based on projected cash flows from new growth.
- Can’t Get Approved for Traditional Loans: Large project funding can be a great, flexible way to access to capital if you have been turned down for traditional financing due to poor credit or a short business performance history. Since financing is based on future cash flow, any issues related to a business’ history doesn’t impact whether it is approved for a loan. This type of funding can be especially helpful to business that is about to make a real shift or is just getting past a significant service or product interruption.
- Can’t Find Investors: Despite promise or profitability, small businesses or those that haven’t had enough time to build up a reputation have a difficult time finding people who want to invest in their projects or ideas. Project financing can help these businesses gain the access to capital they need to grow and prosper and make themselves more attractive to investors in the future.
Is Large Project Financing Good for Your Business?
Large project financing can lead to dramatic boosts in growth, profitability, and long-term value to many small and midsized businesses. But is this unique access to cash and financing tool best for your business?
When you think you are ready to go for large project financing, ask these questions to determine whether it’s right for you:
What financial demands will be placed on your business when you decide to take on a large project or opportunity?
What is your deadline for finishing your project or delivering the promised goods and services?
Will the new project you take on earn you profits in excess of 20%?
Answering these questions honestly will help you determine if large project financing is a good idea for whatever new endeavor you hope to begin.
The Final Decision
The decision to apply for large project financing should be made after a thorough analysis of your business’ current and future financial performance. This is important because you want to make sure that your company will make enough money in the future to cover operational expenses, like purchasing new inventory or staff payroll, and still make loan payments.
Finally, before you sign any contract, make sure you understand all of the terms and conditions, including any fine print. Any lender should feel confident and comfortable answer any questions. When taking on large project financing, it is important to know all the challenges and risks you may face, such as project disruptions, material delays, supply chain changes, and any risk from third parties.
With the right large project financing lender, you will get the funding you need to help your business blossom.
First American Merchant (FAM) offers large project financing that can help your business bring any new project or venture to fruition. Fill out FAM’s simple application to get started.