Contract Financing for Construction Subcontractors
Posted July 25th, 2019
When it comes to managing business cash flow, construction subcontractors face a steep uphill battle as they take on new projects. With 45-60 days or more between starting the job and receiving their first payment, the subcontractor needs enough cash on hand to cover payroll, bond premiums, equipment leases, vendor or supplier payments, and other project expenses. For many subcontractors, Construction Contract Financing is needed in order to fill that gap.
Commercial construction contract financing allows subcontractors to borrow dollars they need for the early stages of a job by using the value of their contract as collateral for the loan. Yes, that’s right, their actual contract!
Mobilization funding, also known as mobilization financing, is a commercial construction contract financing option for subcontractors who do not have the extra cash in the business needed to start the project or are not able to get bank financing for one reason or another. A mobilization funding loan is a short-term option that allows you to borrow up to a certain percentage of the total value of the contract, then repay the loan with the dollars received from the project once work is performed and paid.
Here are a few things to keep in mind when looking for construction contract financing:
This type of financing depends on the subcontractor having a signed contract with a general contractor, property owner, or the party that is paying for the work. The contract will layout job requirements, payment schedule, scope of work, and the total value of the contract.
The important aspect of a construction contract loan is that the cash from the loan is used for project-related costs. This ensures that the project will go well and that the contract can be invoiced and paid.
This is what allows the lender to use the performance capability of the subcontractor and their contract as the key factors for approving the loan versus the company’s financial documents and credit.
The lender can offer a type of pre-approval for a job that the applicant is bidding on or considering, but a loan cannot be issued until the contract is awarded or executed.
Commercial construction contract lenders typically require that the borrower has been in business for at least two years, have a history of performance and be able to provide bank statements and some other corporate documents.
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