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Uses for Construction Working Capital Loans

Construction working capital loans are perhaps one of the most versatile loans you can take advantage of. It may seem like an exaggeration to say that a loan like this can be used for anything, but it’s the truth. Just take a look:

  1. Basic business expenses. This includes the rent for your facilities, utilities, office supplies, computers and other IT stuff, and office furniture. Every type of business needs all these things, and a construction company is no exemption.
  2. Heavy equipment. Unlike other companies in other industries, a construction company often requires the use of heavy equipment. Buying these machines or even just renting them can be very expensive. This may make it difficult for you to complete a project if you don’t have the budget for needed equipment.

And when you add the extra construction supplies, the expenses can really stack up.

  1. Your workers expect to be paid on a regular basis and on time, and they won’t really care that business is slow or that a payment from a client has been delayed. You have to pay them promptly, and in this regard a shortage in your working capital can be disastrous. A construction working capital loan can avert this disaster.

Some projects may also require you to hire more people, so you may need a fresh infusion of working capital as well to cover the extra costs of new hires.

  1. Having no insurance for construction workers working in the field where accidents are liable to happen is not a good idea at all. If you foresee having trouble coming up with insurance payments, it’s better to get a working capital loan than to risk not having insurance.
  2. Business taxes. It’s not just your civic duty to pay your taxes. The tax officials can actually seize your assets if you fail to pay. The tax man is the last person you want to deal with so pay your construction taxes promptly and in full.
  3. There was a time when construction companies relied mainly on word-of-mouth and personal networks to market their brand. Nowadays, construction marketing has become more sophisticated. This is especially true online, because more and more people use the Internet to find the construction company they want to do business with.
  4. Unforeseen expenses. Construction is an industry in which Murphy’s Law is pretty much in effect all the time. Schedules get delayed, problems appear out of nowhere, and accidents happen. Nothing is ever done on time and within budget. And when something goes wrong as it always does, you need to have sufficient working capital to cover the extra expense.

Since by definition you can’t foresee when such expenses will crop up—you only know that they will, sooner or later—you may want a construction working capital loan to shore up your ready funds.

Get a construction working capital loan, and be surprised at the many you ways you may be able to use it.

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Understanding a Factoring Term Sheet

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If you are fed up with banks, you may want to consider getting additional financing through factoring. This is a method that enables you to get anywhere from 70% to 90% of the value of your invoices immediately, instead of having to wait for as long as 90 days to get paid by your customers. You negotiate with the factor, and after the negotiations you get a factoring term sheet that spells out in plain language what you can expect from the contract.

This is pretty much a straightforward document. It explains the factoring agreement, and it includes details such as:

  • The types of invoices they are willing to factor. Some medical factors, for example, won’t handle Medicare or Medicaid payments. It may also specify if you can choose the accounts you can factor, and whether each invoice is handled independently. Minimum amounts may also be specified. For example, the factor may not want to handle any invoice that’s worth less than $1,000.
  • The amount of the advance. This says whether you get 60%, 70%, 80% or 90% of the value of the invoice. Sometimes conditions will be spelled out as to which accounts can receive higher advances than others. For example, accounts with the most credit worthy customers (famous or long-standing businesses) may get bigger advances.
  • The discount rate. This is the fee which is a percentage of the value of the invoice. This may be a fixed rate, or a variable rate depending on the prime rate. Some conditions may also be specified which may affect the rates for certain invoices.
  • Additional fees. Different factoring companies charge different fees. Some, for example, may require an audit of your accounts receivable practices to see if you are doing it correctly. Such an audit may come with a fee. Other fees may include a charge for each invoice, or a termination fee when you want to end the agreement.
  • Disbursement of reserve amounts. The reserve is the rest of the payment, less the fess demanded by the factor. A day may be set aside for disbursement. Payment methods may also be specified (the funds may be deposited directly into your bank account.
  • The length of the commitment. Some contracts require a long term commitment for two years or more. You may have to pay a hefty termination fee if you end the relationship prematurely. Others have no minimum time frames at all. The contract may be month to month, and you may end the factoring agreement after the month.
  • The collection of the payments may also be detailed. Most factors insist on doing the collection themselves, although sometimes the collection may be done by your company of you want to ensure that the payment is done professionally and courteously. However, a factor almost always insists that the payments must be sent directly to them.

Before you sign any contract, you need to make sure that when you get a factoring term sheet that’s clear and accurate. You may want to hire a lawyer to explain the term sheet to you and determine whether the terms are beneficial to you or not.

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Factoring for Doctors: Is This Your Best Option?

Doctors who run their own clinics invariably need money to continue their practice. That’s a problem inherent in the industry, since insurance companies are the ones paying the bills and they are notoriously slow payers. Sometimes they don’t even pay the bill in full. This is why many doctors ask for loans, and why factoring for doctors has become immensely popular.

But if you’re a doctor, do you try to get loan or do you take advantage of the services of a medical factor?

Loans for Doctors

Some lending institutions offer loans specifically for doctors. Like most loans, you get a specific amount and then you pay every month. What you need is a steady stream of patients, and every month should bring in enough cash to enable you to make your monthly payment for the loan.

The loan amount you get depends on several factors. How long you’ve trained, your work experience, and even your specialty can affect this amount.

Medical Factoring

Technically, this is not a loan at all. The medical factor takes your invoices, and in return you get an advance on the value of the invoice. You may get as much as 80% of the value right away. The last 20% will be sent back to you once the insurance company pays the amount on the invoice in full, minus the fees for the medical factor.

For some clinics, the advantage of medical factoring goes beyond merely getting an advance. Medical factors deal with the insurance company, and they take care of the payment collection. This allows you to fully concentrate on providing the right care for your patients. You won’t have to hire additional employees to collect the payments for you.

Conclusion

So which is better for you? It all depends on what you need the money for, and what’s actually available for you.

Let’s say for example you need the money to expand your business (or buy a high-end medical equipment), or you want to take care of a debt that’s charging you a very high interest rate. Then in all probability you’ll need a medical loan. You can take the time to apply for the loan, and since it’s a one-time problem you can afford to go through the excruciatingly complicated loan application process.

But if you have a working cash flow problem, you’ll need either a line of credit or a medical factoring service. Since a line of credit can be very difficult to set up and there may be a limit involved, your only other viable choice is factoring.

With factoring for doctors, there’s no real limit except for the value of the invoices you’re pulling in. The higher you charge your patients, the more leeway you get in terms of the advance money you will receive. Once you’ve set up a factoring line for your business, you don’t need to reapply for more advance funds if you need them. You only need to give the factor more invoices.

 

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What Affects 30 Day Factoring Rates?

Factoring is a very popular method these days of using invoices to get the funding you need. Basically, instead of having to wait for 30 days for a customer to pay fully, you get 70% to perhaps even 90% of the value of the invoice in just a day or two. When the customer finally pays after 30 days, you get the rest of the money after the factor has deducted its fees. These fees often depend on the agreed upon 30 day factoring rates.

There are several considerations which can affect these rates:

  1. The credit-worthiness of your customers. One of the reasons why factoring is so popular these days it that it’s easy to get approval for the funding. That’s because your company’s credit history and your own credit is immaterial. You can have lousy credit and you can still get your funding through factoring.
  2. What matters most here is your customers’ ability to pay. So if it seems that these customers are always paying in full and on time, you can expect lower 30 day factoring rates. It can get higher if there is greater risk that your customer won’t pay at all.
  3. The value of the business you give them. When factors negotiate a factoring agreement with you, they will take note about how much business you decide to bring their way. If you just want a one-time deal, then the 30 day factoring rates can be very high.
  4. But if you enter a lock-in contract for a couple of years, then the rates can be much lower. It can also be lower if the volume of the invoices is very large. If you bring in a million dollars’ worth of invoices a month, then the 30 day factoring rates can get very low. This is especially true of the invoices involved are few with high amounts, rather than thousands of invoices with little amounts for each.
  5. The percentage of the advance. Some factors may offer a large advance, but they may charge higher 30 day factoring rates. But if you are satisfied with a lower cash advance, then you may enjoy lower rates.
  6. Recourse or non-recourse. With regular recourse factoring, the factor can demand that you return the advance if your customer does not pay for any reason. With non-recourse factoring, the factor can’t go after you if the customer is unable to pay due to bankruptcy.
  7. Since the factor is assuming a greater risk for non-recourse factoring, that means higher 30 day factoring rates.
  8. The experience of the factor in your industry. If you are a staffing company, for example, what you need is a factor who is already familiar with staffing invoice procedures and the need for time stamps. Since they already know how to set up the factoring line, the rates may be lower than what a newbie to the industry will demand.
  9. Obviously, you want the lowest 30 day factoring rates you can get. So get a factor with experience in your industry, and submit only the invoices which involve credit worthy customers.

Setting Accounts Receivable Factoring Rates for Staffing Companies

It’s not a secret that staffing companies nowadays have to find ways to deal with a new type of job market. For the most part though, things are looking up. Hiring is on the rise in many sectors, including oil and gas, education, IT, legal, and financial services. The recession and the job cuts are no longer apparent today and a lot of employers these days prefer to hire consultants through a staffing company.

But the business model for staffing companies usually results in a rather distressing cash flow situation. Staffing companies pay employees on a weekly basis. But business clients usually pay after 30 days, or even longer. Not having sufficient money for payroll can happen because of this.

This is where accounts receivable factoring comes to the rescue. The factor takes your accounts receivable and in return they advance you a huge chunk of the value of your AR. Then when the client pays the invoice in full, you get the rest of the money minus the fees charged by the factoring company.

There are several details about accounts receivable factoring rates you need to consider:

  • The percentage of the advance. Some factors are known to advance as much as 90% of the value of the invoice, and sometimes they boast that the value of the advance is more than that. Usually, it’s in the 70% to 80% range. It all depends on a number of things, such as the invoice due date, the credit and trustworthiness of the customer and their tendency to pay on time, the value of the invoice, and whether the factor has a long standing business relationship with your company.
  • The factoring cost. The accounts receivable factoring rates for staffing companies are usually expressed as a percentage of the value of the invoice, just as the interest rate is a percentage of a loan. It can be as low as 1%, or it can be two points over the prime rate. Again, all this depends on the factor and how you two negotiate your factoring agreement.
  • The factoring fee. This is another fee, but usually this is a flat fee for every single factored invoice. This is why you may want to factor your larger invoices so that you keep the factoring fee to a minimum. A one-million dollar invoice is better than paying the factoring fees of a thousand accounts receivables worth a thousand dollars each.
  • Just make sure though, that every fee you pay is specified in your agreement. And you need to make sure that the accounts receivable factoring rates for staffing companies are reasonable. Paying 20% for a loan is one thing. Paying 20% for money you get only a month in advance is another thing entirely. You have to calculate the APR so you understand how much the cash advance is costing your business. With this information, you can properly assess whether the advantages of accounts receivable factoring are worth what you pay for.

Financing Construction Invoices for Sub-Contractors

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Nowadays, financing construction invoices for sub-contractors is an increasingly popular option. Usually this kind of financing is used to boost a company’s working capital, and that’s because the payments and the expenses don’t match up.

Sub-contractors need to pay their workers on a weekly basis, and they need to cover overhead as well. For every project they have, they also have to cover the costs of supplies as well as the rent for equipment. But it’s very common for sub-contractors to receive an invoice instead of cash, with the payment from the general contractor or client coming in after two whole months of waiting.

How It Works

While in some cases financing construction invoices for sub-contractors means receiving a loan with the invoices as collateral, that’s not usually what happens. After all, loan applications still take too much time. Sub-contractors have to present several years of profits for lenders, and they need to have an excellent credit history. For many subcontractors, these requirements simply can’t be met especially when the sub-contractor is new to the business.

What happens is that the finance company essentially purchases the invoices. The subcontractor gets 80% of it in advance (the exact percentage may vary depending on the agreement), and that money can then be used for their needs. Meanwhile, the finance company monitors the invoices and handles the collection. Once the general contractor or the client pays in full, the factoring company deducts the fees from the payment and gives the rest to the subcontractor.

Advantages over Other Forms of Financing

With this type of financing, the sub-contractor enjoys several advantages. Perhaps the most crucial here is that the chances of getting the additional funding are much higher. That’s because the credit history of the sub-contractor is irrelevant. Processing a funding application can take just a week or two, and afterwards the money can be forwarded in a day when the invoice is received.

This is in stark contrast to dealing with banks. It’s also much better than dealing with credit card companies, which may not be able to provide the amount the subcontractor needs. What’s more, credit card companies can charge interest rates so high that they can seem almost criminal. The fees commanded by factors are much lower.

Another advantage is that the sub-contractor is spared from having to monitor the invoices and making the collections. These tasks are already part of the factor’s services. There’s no need to hire additional personnel to handle these jobs. The subcontractor can concentrate on completing the current projects and searching for new ones.

Finally, the factor also investigates the credit of potential clients. This can help the subcontractor make informed decisions regarding taking on a new client, who may or may not have a good history of making payments. And when the subcontractor does take on a new project, they have the working capital to use for supplies and rental equipment.

With financing construction invoices for sub-contractors, operations are smoother and opportunities for growth can be seized.

Despite Poor Business Credit, Factoring Finance Loan Applications Still OK

Factoring: A Loan That Will Not Affect Business CreditAs a small business owner, one of your responsibilities is to make sure that your personal credit is excellent. Your personal credit won’t only affect your mortgage, but it also affects your ability to get a loan from a bank. That’s actually one of the reasons why factoring is so popular. Even if you have a poor business credit, factoring finance loan applications still have a good chance of being approved.

The Difficulties of Getting a Bank Loan

It’s bad enough for you personally if your credit is in the toilet. Your ability to get a favorable mortgage is diminished, you have to pay for high interest on car loan agreements, your credit card interest rates can skyrocket, and so will your insurance premiums.

But when you have poor credit, your business suffers as well. That’s because among the many requirements that a bank will ask from you is your personal credit score. This is standard procedure for just about every bank. After all, your credit reflects your proven ability or tendency to pay loans on time. As the business owner, your personal credit will be mandatory if you ask for a business loan.

Factoring and Your Personal Credit

With factoring, you get your financing by using your accounts receivables. These invoices usually get you the payment from your clients in 30 (or even 60) days. But waiting for such a long time to get your payment can be problematic, especially when you have an immediate need for cash.

With factoring, you get the bulk of the value of the money right away. The factor then takes over collecting the payment from the client. Once your client has paid the factor in full, you get the rest of you money back minus the fees for the factor.

In this financing model, it’s easy to see why even with your poor business credit, factoring finance loan applications are still granted. That’s because your ability to pay the money that the factor advances to you is irrelevant.

What is important, however, is the credit of your customer who will pay back the money forwarded by the factor. That’s why the credit of your customers is crucial, because the factor won’t advance any money to you if they think your customer is likely to pay late or not pay at all.

Other Alternatives

You can, of course, still seek loans from other institutions which may be willing to lend you money even when the banks have turned you down. But there are problems here. One is that because of your bad credit the amount you receive may be too small because the lender doesn’t want to risk too much of their money.

The other problem is that the interest rate can be downright awful. It’s not uncommon for businesses with poor credit to pay as much as 40% in interest.

So if you have a poor credit history and you need financing, you may want to consider factoring. With this option, your credit scores don’t count. What matters is that you have customers with excellent credit.

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Factoring for Technology Staffing Firms

factoring for technology staffing firms If you run your own technology staffing firm, sooner or later you may run into some problems with your cash flow. Most of your overhead is payroll since you are in the business of providing companies with workers. Each one of those workers usually expect to receive their wages on a weekly basis. But the problem is that your customers will often pay after 30 days. Some may even pay after 60 days. And that’s why factoring for technology staffing firms can be a lifesaver.

How It Works

You can add funds to your cash reserve and boost your cash flow easily with factoring for technology staffing firms. The way it works is simple. The factor takes your invoice and verifies it. You probably have your clients sign the time cards for the billing process. The factor just checks the credit of your client, and then it checks the time cards.

Once that’s done, you can get up to 80% of the value of the invoice right away instead of waiting 30 or 60 days. The percentage may vary depending on the factor. You can then use that money to cover your payroll and other operational expenses. The factor tracks the invoice and does the collecting. When the client pays in full, you get the 20% back minus the fees charged by the factor.

With this process, you can factor just enough invoices to cover your needs. Your other invoices can be untouched. You can then slowly build your cash flow so that you no longer need the services of the factor.

Long Term Factoring

Some companies, however, prefer to actually do business with factors for the long haul. That’s because factors offer services that prove valuable, especially for staffing companies. For example, the matter of collection is handled by the factor. That means you can just focus your efforts on providing the right manpower that your clients are looking for. You don’t have to bother hiring employees to take care of collections. That even saves you more payroll expenses.

Factors can also track and manage your accounts receivable for you. This means you’re also spared from having to hire and pay a receivables clerk to manage the accounts receivable.

Then there is the matter of credit investigation. Factors check that the credit rating of your clients is good, because they don’t want problems in collecting payments. The factors also make sure that your new clients have a good reputation in paying their invoices on time. With their help, you will know which clients have the habit of paying late or won’t pay at all.

Choosing a Factor

It matters which factor you deal with so that you can maximize the benefits you get. The best ones will offer the highest advances and the lowest fees. They are familiar with the industry and they already know which clients are slow to pay or don’t pay at all. Your factor should also be professional when they collect the payments from your clients.

Choose the right factor, and your cash flow problems will be solved.

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Should You Use Asset Based Lenders in Florida?

Asset Based Lenders in FloridaYou need money to make money. That’s true in Florida and anywhere else in the world. For the most part, you will have to start by putting your own money but that may not be enough. Fortunately there are several other ways you can get financing in Florida.

Right now, the banks in the state are becoming more amenable to lending. They’re growing their loans at double the national rate. But should you consider approaching asset based lenders in Florida?

What Are Asset Based Loans?

These loans are a type of finance which use assets as collateral. In general, these assets are usually either your accounts receivable or your inventory. You agree on a percentage with the asset based lenders in Florida, and you get an advance on the value of your asset. That’s usually 70% for the receivable, but in a few cases up to 90% may be offered. For completed inventory, the percentage is usually 50%.

Essentially, what you’re doing with the loan is getting your own money in advance than waiting for the money to be paid to you.

Applying for Asset Based Loans

Quite a lot of financial institutions offer this type of loan in Florida. But it may not be as easy for you if your company is relatively new. It may also prove easier to apply for a larger loan than for a smaller one, because it costs the bank the same amount of money to monitor a large asset-based loan.

If you want to apply for an asset based loan, your business should have good financial statements and reporting systems, along with easy-to-sell inventory. You also need customers who have a good reputation of paying their bills on time. You will need financial statements that are accurate and detailed. They have to look professionally prepared so that you can show that you’re on top of your business. You also have to convince the asset based lenders in Florida this is a viable loan.

Pros and Cons

There are advantages and drawbacks to securing asset based loans. On the bright side, these loans can be the key to help your business overcome temporary hurdles or to give you the money you need for growth. Asset based loans can provide the capital for businesses that are recovering from a slump, insufficiently funded, experiencing rapid growth, or highly leveraged. These loans are perfect for those whose cash flow is affected by industry or seasonal cycles.

On the other hand, the likelihood of getting the loan approved depends largely on the quality of the accounts receivable. The advances you may get may only come from receivable which have a high credit rating or pay in less than 60 days.

The interest rate may also be higher than traditional loans, and usually your customers will pay the money directly to the lender.

So should you opt for asset based loans? That’s entirely up to you. But if you need the capital then this option must be considered.

 

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