Factoring Articles

Construction Factoring Resurges during a Challenging Economy.

Construction Factoring has been used in the construction industry for years, but the latest trends indicate that it's on the rise. The recent economic downturn and tightening of the credit markets has been especially hard 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 experiencing cash flow problems. Because the availability of commercial financing has been chaotic for the past year, this situation is especially evident when seeking construction funding for commercial property. Recently, there has been an increase in construction factoring among contractors, which provides the much needed cash flow to pay suppliers and meet payroll. Why? Because factoring allows businesses to obtain funds based on their current accounts receivables. Typically construction subcontractors have to wait as long as thirty to sixty days to get paid for their invoices. Construction factoring advances funds against invoices and provides enough money to pay the bills when things are tight.
Recent availability of commercial loans has tightened significantly. For several reasons, this has resulted in even more of an apparent shortage of business financing for construction of new commercial property. Even before commercial finance options became more restrictive during the past few months, construction financing was generally viewed as more "risky" by most lenders. The most significant risk factors for commercial construction finance usually include the following:
Potential contractor liens are an added risk not present in commercial financing for existing commercial properties. Many construction projects exceed initial cost estimates and/or take more time to complete than originally anticipated.

Of the two facts noted above, the risk of potential contractor liens is a special lending concern in the current funding climate for commercial lenders because of the deteriorated health of the construction industry. However, the current difficulties seen in residential construction are frequently 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 kinds of construction activity.

The real estate motto in this case is quite appropriate: "Location, Location, Location." The main point in emphasizing location is to illustrate that the use of non-local funding sources can be a viable solution to consider for commercial financing involving both existing properties and new construction. In some areas of the country, local commercial lenders have stopped virtually all new business financing as well as construction financing.

In the negative business borrowing climate that we are seeing today, it is more important 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 most cases, grow when using smart financing options.

For more information about invoice factoring call The Interface Financial Group (IFG) at 877.210.9748.

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