Where to Get Working Capital for Construction Sub-Contractors

Where to Get Working Capital for Construction Sub-Contractors

On the face of it, the cost of factoring or purchase order financing can be rather high, compared to the cost of a typical business loan from a bank. But the need for working capital for construction subcontractors is oftentimes urgent, and bank loans take a long time to process. That means alternative sources of funding must be sought.

Subcontractors are always in need of working capital. Here are some of the problems peculiar to the construction industry:

  1. You won’t be paid for the job until it is completed. Right away, you know you need the working capital in order to take on the job. Without the capital, you absolutely won’t be able to fulfill the contract.
  2. The raw materials you need for the job are expensive. Steel, iron, glass, stone, cement—all these things aren’t cheap. You may take advantage of discounts by buying in bulk or by paying on COD terms. But that means you need to have access to your working capital.
  3. You need to rent heavy equipment. As a subcontractor, you’ll rarely own heavy equipment outright. Usually, you don’t really own equipment like concrete mixers and cranes. That means you have to rent them, and again the rent is often required immediately.
  4. You have to pay for labor. This is one expense that has to be met on time. You really can’t afford to be late on this particular expense. The average hourly rate for workers is $16.84 per hour, but some laborers may cost more than $28 per hour. Add the number of hours, and then multiply that by the number of days, and then multiply that by the number of workers you employ. The final tally can be exorbitant, and you have to pay regularly.
  5. You may have to do extra work. This is a common problem in construction. Often a client will ask for changes and extra work, and expect minimal or even no additional cost. It can be infuriating for subcontractors, but what can you do? This is simply human nature at work. Clients are finicky, and they change their minds often. There’s nothing you can do about that.
  6. Clients may go bankrupt. If you think you have money problems, you’re not alone. Unfortunately, lots of people have money problems of their own. The thing is, if you have money problems then it doesn’t concern the client. But if the client has money problems, then it concerns you because you’ll have trouble getting paid.

What you need to do as a subcontractor is to add all these expenses along with the cost of the working capital for construction sub-contractors. When you subtract all your expenses from the amount of money you receive as payment, what’s left for all your hard work? In most cases, the expense of the financing is worth it, especially when you consider that completing an order can generate more contracts in the future. In the end, lacking the working capital may be disastrous, and only the infusion of quick capital can save your business.

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Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com