What is Project-Based Contractor Financing, and Why You Need To Know About It
When you’re a commercial contractor, the work doesn’t stop just because your cash flow has. You can’t press pause on purchasing construction materials or equipment for a new project while you wait for your backlog of unpaid invoices to come through.
That’s where contractor financing comes into play. By financing your materials, labor or equipment, you can continue accepting new projects and growing your business without getting stuck in a bottleneck of late invoices. While there are several options for contractor financing, one of the least-known methods, project-based contractor financing, may just be the most beneficial. If you haven’t considered it for your business, you might be missing out.
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What Is Project-Based Contractor Financing?
With project-based financing, contractors partner with finance experts specializing in construction to gain upfront funding for a specific aspect of a project, such as construction materials or equipment. Material suppliers sometimes require payment upfront, or otherwise offer limited financing terms that do nothing to eliminate the inevitable cash-flow gap. Since you literally cannot begin, much less complete, a project without materials, supplier terms are a popular choice for project-based financing..
So, how does project-based financing work exactly? Here’s how it might look to finance materials with a project-based financing partner:
- A construction lender partners with you to better understand your business and how best to utilize financing to achieve your goals, whether to simply keep it running smoothly or to spur significant growth.
- You identify a specific project you have coming up, or are currently working on, that you’d like to leverage project-based financing with. You then receive a quote from your material supplier for the amount of materials needed over the upcoming month or two.
- Your contractor financing partner pays your supplier with upfront cash, eliminating the need to negotiate terms, and allowing you to take advantage of a cash discount on the materials.
- Your supplier ships you the materials right away and then you repay the cost of those materials over time. With the extended terms, you enter a “pay when paid” situation, giving you the flexibility to bid on more projects and grow your business (At Billd, we offer 120-day terms.)
Spreading out those payments on a more flexible timeline, versus in one lump-sum, will help avoid accounts payable bottlenecks that might be holding your business back from achieving growth.
There are several other reasons why choosing project-based contractor financing is a smart business decision. Let’s look at the top five reasons to choose project-based financing over the other financing options.
5 Benefits of Project-Based Contractor Financing
1. Gain a partner with construction expertise
Lenders like banks may only evaluate your business by your credit score and usually have no idea how your business works or why you might be slow to make payments. This can result in low credit limits or even difficulty securing financing in the first place, leaving many contractors in the lurch when they need to free up cash fast. But with project-based financing, you’ll partner with experts who focus on the construction industry and understand the unique challenges you face as a contractor as it relates to construction payment cycles.
2. Access higher credit limits
A big drawback of financing through traditional contractor lines of credit or contractor credit cards is low or fluctuating credit limits. If you miss a payment on a line of credit, your limit could drop significantly, which means you’ll reach your borrowing limit much faster than you anticipated. Business credit cards feature lower limits than lines of credit, making them even less useful when you’re a contractor who needs to drop tens or hundreds of thousands of dollars upfront to begin a project. You’re much more likely to have access to higher credit limits with project-based financing because your financing partner evaluates your projects and the needs around them, not just your credit score.
3. Enjoy lower monthly payments
Many contractor financing partners offer interest-only loans. Not only does this mean you’ll enjoy lower monthly payments than you would on an amortized loan, but with extended repayment terms, you will also gain the flexibility to pay off the amount you owe when you finally receive payment on a project. Again, it goes back to the benefits of partnering with finance experts who know how the construction industry works and will work with you to provide the right solutions for your business.
4. Get funding, fast
When you work with a traditional banking lender, getting approved for financing involves piles of paperwork and rigorous processes, which can be a drag on your project timeline. However, the process typically goes much faster with project-based financing because your financing partner understands your need for speed to stay on track in the construction industry. A project-based lender is much more likely to work with you to secure funding quickly and stay on schedule, many times offering same-day approvals and same-day funding. With Billd, approvals and funding can happen as quickly as same-day.
5. Negotiate better pricing
An additional benefit of paying suppliers with upfront cash for materials or equipment is the ability to negotiate better pricing with companies that offer cash discounts. So, not only are you freeing up cash flow with project-based financing, but you’re also getting better deals on the resources you need. In addition, you’ll gain the ability to work with a wider range of suppliers, who might otherwise require long application processes to extend terms or decline your business altogether.
A construction financing partner to help grow your business
If large expenses like materials are preventing you from bidding on larger projects and growing your construction business, consider project-based financing. When you partner with a construction financing expert like Billd to purchase your materials, it’s more than just a borrower-lender relationship — it’s a valuable partnership that will support your future success.
We launched Billd because we realized how lack of access to working capital, along with ongoing cash-flow issues, combine to create significant obstacles for construction contractors looking to sustain and grow their businesses. That’s why we’re helping contractors take control of their cash flow with an innovative solution that offers longer terms to pay for construction materials and the flexibility required to succeed.
Learn more about how Billd’s project-based contractor financing can help you overcome obstacles to achieve your business goals.