California has the 9th largest economy in the world, and Moody’s expects the state to do well in the near future. California added new jobs in 2013 at a faster rate than the country’s average. The housing market is recovering, and California added more construction jobs (31,500 new jobs) in 2013 than any other state. And this growth has fueled the need for construction factoring for California businesses.
The Need for Additional Financing
Contrary to popular belief, additional financing isn’t just a way for companies to stay afloat during the lean periods. The additional financing can make it possible for construction companies to take advantage of growth opportunities.
Construction companies may bid for contracts, but they must also make sure that they have the working capital they need in order to fulfill their contracts. Construction companies have many expenses to pay for. They need to meet payroll on a weekly basis, they have to buy various supplies, and they often have to rent expensive equipment.
The need to fulfill a contract is paramount, as your reputation will suffer or soar depending on your performance. It’s this risk which has prevented some construction companies to refrain from accepting some contracts in the first place. They feel that they don’t have the required working capital to fund these projects.
Banks Won’t Help
The problem is that banks are not exactly clamoring to help construction companies obtain the funding they need. After all, California lost more than 1.4 million jobs during the recession, and those jobs have not yet been recovered. Banks today are more cautious—their application process takes a very long time, the requirements are much more stringent for loans, the approval rates for loans are basically fifty-fifty, and you may only get a fraction of the amount you ask for.
Construction Factoring as a Viable Alternative
So what can you do? If you have completed some previous construction projects but your clients have not yet paid in full, you can use your accounts receivable to bolster your cash reserves so that you can fulfill new contracts. You don’t have to count that money out. Instead, you can get your money in advance so that you can use it for your working capital.
That’s how construction factoring works. The factor takes your invoice and then advances you about 80% of the value right away. The percentage may vary depending on your situation and your factor. The factor does your collections for you, which also relieves you of the need to set up your own collection department and thereby reducing your expenses. Once your previous client pays the factor in full, you get the rest of the payment minus the fee charged by the factor.
With construction factoring for California businesses, you can have the opportunity to grow your business at a faster rate than you ever had before. Unlike bank loans, factoring has a much higher approval rate, and the entire process to secure much needed funding is much faster. You will get the money you need quickly, and that will enable you to expand your business.