Construction financing continues to be a challenge for many contractors, due to a number of economic factors. For example, contractors are very sensitive to economic cycles and revenue fluctuations from year to year. Excessive competition and the volatility of the industry are also an issue. For banks, credit underwriting issues are a big obstacle for banks in lending to these firms (construction company failures, unpredictable nature of the work, the estimates used in financial statement(s) preparation, etc.).
Like any other business, a lack of financing causes many problems for construction firms. Without adequate cash, the company will be unable to hire new employees, new equipment, cover payroll, etc. If short-term working capital cannot be secured, the company will also be unable to pull itself out of a tight spot or seize opportunities when they arise. Even so, banks are typically unwilling to work with these firms.
If the construction company possesses characteristics similar to the ones below, the challenge of securing traditional financing will be even greater:
- Limited equity
- Substantial under-billings
- Poor accounts receivable to accounts payable ratio
- Poor credit rating and reputation
- Delinquent payroll taxes, union dues and insurance premiums
Alternative Lenders Offer Quick Business Funding
The construction field encompasses many different trades, from heavy-duty welding to concrete pumping equipment. Regardless of your specific business type, every construction firm will experience periods where it needs a small business loan. Even though banks have let these businesses down time and time again, alternative lenders have stepped in to offer quick financing solutions – solutions that, in many cases, are easier and more efficient than traditional lending.
For example, alternative lenders like First American Merchant offer businesses a merchant cash advance. As a high risk specialist, FAM is more than willing to work with industries and business types considered to be “high risk” and/or those with a bad credit history. Contrary to popular belief, a cash advance is not a business loan. It is simply a sale. FAM purchases your businesses future sales at a discounted cost (the amount and at what discounted cost are agreed upon by both parties). In return, your business is given the cash it needs in as little as 24 hours.
If your construction firm is struggling to get off the ground, cover payroll and keep up with the competition, consider what alternative business funding could offer your company in flexibility. Unlike working with a bank, FAM has a high approval rating, fast approval and funding time and minimal documentation requirements. The application process is also known for being simple and hassle-free. Limited time and business, limited equity and capital, and poor credit are not an issue.