Most lending partners ask for verifying paperwork during the approval process, including copies of driver licenses, Articles of Incorporation, and an SS-4 form notice. The SS-4 form notice, also known as an EIN Confirmation Letter, verifies your Employer Identification Number (EIN). Why do we need to verify your EIN? An erroneous or invalid EIN can lead to all sorts of headaches, including tax return conflicts and even a potential tax audit.
The good news is that verifying your EIN is easy — all we need is your IRS-issued SS-4 form notice.
What is an SS-4 form?
The SS-4 form is used by businesses to request an EIN from the IRS. If you don’t have an EIN, then this is where you’ll start. Most lenders, including us, can’t help you without an EIN. You can access a PDF of the SS-4 form by clicking here. Once the form is complete, you can mail or fax it to the IRS.
When you receive your EIN, the IRS sends an EIN Confirmation Letter. This is the verification your lender needs to approve your loan.
What to do if you don’t know your EIN
Some business owners discover that they don’t know their EIN. If this happens to you, don’t panic. Your bank should have your EIN on file — you most likely had to provide it when you opened an account for your business. If not, you can request the number from the IRS by completing an EIN 174c Verification Letter.
How to request a copy of your SS-4 Form Notice from the IRS
If you know your EIN but can’t find your SS-4 form notice confirming your EIN, there are a couple of ways you can get a copy. If you have an accountant, they may have completed your EIN application for you and have a copy of the confirmation notice. If that doesn’t work, head to the bank. Because most banks require an EIN to open an account, they verify the provided EIN with an SS-4 notice. Ask your banker to provide you a copy.
If all else fails, you can request a replacement copy by calling the IRS Business & Specialty Tax Line. The phone number is (800) 829-4933, and the line is open from 7 a.m. to 7 p.m., taxpayer local time, Monday through Friday. The tax specialist will ask you to provide your EIN and some identifying information about your business. Once they have verified your identity, you can request an SS-4 form notice to be mailed or faxed to your business. The IRS will only mail or fax to the address or number it has on file for your business.
You probably don’t need anyone to tell you this, but getting documents from the IRS can take awhile. This is why it’s a good idea to prep your documents before you start applying for a loan. You don’t want to be waiting on an SS-4 form when you need the money now! Ask the tax specialist how long the expected wait will be.
If you have other questions about applying for a commercial construction subcontractor loan, check out our Commercial Construction Financing Questions page. If you found this blog helpful and informative, you may also enjoy our Built For Growth Newsletter. Click here to subscribe and get more tools and resources sent directly to your inbox every two weeks.
Few commercial contractors have the luxury of paying the full up-front cost of a project without help along the way. But often, they wait too long to seek that additional funding, which can put unneeded stress on the project itself or even the business overall.
Due in part to the Great Recession a decade ago, most general contractors have done away with the practice of making upfront payments to their subcontractors. As a result, subs will be on the job site for 30 or 60 days before they can submit a pay app for that work, and then it could be another 30 or 60 days before they receive that payment. Throughout that time, they still need to make payroll, cover material costs, equipment and insurance.
Most contractors need additional funding, but where can they get it? Many lenders, from banks to factoring companies, will not issue funds even to well-qualified or established businesses until they have an actual approved pay app or receivable. Unfortunately, by that point those businesses often find their project cash flow already stressed.
You don’t need to wait that long for the capital you need. Late payments to vendors or supply houses (and late payment fees) may not be necessary after all.
When should you start looking for funding?
Consider the cost and method of any needed capital during the bidding process of a job. Often, owners wait until after a job has been awarded and then scramble to find funding when it’s most needed, which can limit their options and force them to take out a more expensive loan. That scramble can be avoided. No matter what type of lender you plan to use, it’s always wise to identify the amount and cost of a loan so that it can be built into your bid price.
The Mobilization Funding difference
Mobilization Funding, LLC goes a full step further. We talk to many of our clients even before they bid on a job and provide a straightforward breakdown of the cost of the loan, catered specifically to the project they are considering so that it can be built into their job costs. The funds are issued upon the start of a project, or at the time they are needed by the borrower. The repayment schedule is then organized according to the project’s payment schedule. In other words, the loan schedule is designed so that the business can repay the loan with the payments they are receiving from the general contractor through the normal schedule and process.
Mobilization Capital, also known as Mobilization Funding, is a type of loan that can help you avoid stretching your resources too thin in those first several months of a project. It’s a unique loan option offered by a small number of lenders. Contact us to get started.
Recommended Reading
Construction projects are capital-intensive and, unlike many other industries, the company undertaking the work — that is, the subcontractor — puts in a considerable amount of work before billing and months before receiving payment for its services. Many commercial contractors have a hard time securing traditional funding. Alternatives are available, but how do you decide which is the best for your business? When seeking a construction loan, you should consider the following factors in deciding which loan to pursue:
What is the capital for?
Commercial construction loans are often used to cover any number of a business’s needs, such as the cost of leasing equipment, payroll, materials or bond premiums. The more specific, the better.
How much money is needed?
Prior to seeking a loan, examining your current financial position will give your business a better long-term picture of your true lending needs. For larger loans, the input of a Certified Public Accountant can help to ensure that you are seeking the appropriate sized loan for your company.
Once you have pinned down the purpose and amount of capital you are looking for, you can move on to identifying the appropriate loan.
Here are some additional questions to consider while making your decision:
Is your repayment schedule in-line with your pay apps?
Be sure to have a full written breakdown and understanding of when your payments are due and what the penalties are for late payments in case of a change order, weather delay or other holdups. Hidden fees and penalties can add up quickly and result in a more expensive loan than you had anticipated. Some funding options, like Merchant Cash Advances, auto-debit hundreds of dollars from the borrower’s account every single day. If you will only be on a project for another three months and you have a six-month payback period on an MCA, then you need to know you have more work starting quickly and enough work to be able to actually afford the same daily payment in months four through six of the repayment period.
Surprised? That’s just the beginning.
Check out our Guide to Merchant Cash Advance Loans.
Can you build the cost of financing into the bid amount or project costing?
The key here is anticipating which jobs you will need additional capital for rather than waiting until your coffers have started to run dry. Building the cost of financing into your bid amounts will allow you to keep your profit margin at your projected amount.
What is the total cost of the loan? (Including closing costs, interest and additional fees)
No loan is going to be free, but you should have a solid understanding of the cost of that capital before signing on the dotted line.
Start your application today. Just answer these 3 questions!
Why would a subcontractor need a construction loan? Managing cash flow and staying above water can be difficult for any business, but the problem is especially prominent in the construction industry. Due to a complex and inefficient payment system, contractors have a nearly impossible task of covering the cost of a job, especially before the pre-construction phase begins and for the first three months after you mobilize and begin working on a particular site.
That system forces you to have upwards of 20% or more of the total project cost up front to cover things like bond and insurance premiums, materials, payroll, equipment and supplies. You won’t be paid for 60 or 90 days after a project begins—and that’s if everything goes just right.
Construction Loan Alternatives
For a smaller job, you may be able to scrape together funding from a bank on a personal line of credit or secure a loan, but that loan is based on your personal assets. It’s risky and there’s only so far that a business owner can go with that strategy.
Banks continue to be reluctant to offer small business loans to contractors after the economic collapse of the late 2000s. Yet, according to the Federal Reserve Bank of New York’s annual small business credit survey, 61% of employer small business’ faced financial challenges in 2016. The number one problem was securing the funds they needed to expand.
Another 17% of respondents said they couldn’t get the money to pay for inventory or buy what they needed to fulfill contracts.
Without taking on a partner and giving up some of the ownership of their company, there are few good options for smaller and mid-sized subcontractors who are interested in bidding on larger projects and elevating themselves to the next tier.
Factoring
It’s common for contractors to limp along with the cash they have on hand and then bill the general contractor for the work completed in the first 30- or 60-day time period of the project.
Then, with cash reserves largely dried up, you start to feel the pressure. You may start to cut employee hours or hold off on ordering supplies. To stay afloat, you may turn to a factoring company.
Factoring companies purchase submitted and approved invoices and pay you, the subcontractor ,a percentage of the funds owed (typically about 80%). The general contractor then pays the factoring company the full invoice amount, which recoups their initial payment to the contractor as well as a fee for their service. Any remaining profit is then sent to you.
Benefits and Drawbacks of Factoring
Used correctly, factoring can be a useful tool for a subcontractor. But there are disadvantages, too. It’s a headache for general contractors, who find themselves inundated with paperwork. It’s stressful for the subcontractor too, as it may be viewed by the general contractor as a sign that you’re having financial troubles.
Merchant cash advance loans
What if you find yourself in such financial distress that you need payroll or equipment capital before you send the first invoice to your general contractor? This situation often results in a daily debit loan, which is when a company grants you a lump sum dependent on cash deposits in your company’s bank account and then the lender automatically deducts money from the company’s checking account on a daily or weekly basis until the loan is repaid in full.
The Slippery Slope of Cash Advance Loans
While daily debit loans and other cash advance loans have some benefits—they solve the immediate funds issue, have automatic repayment and can help boost business credit scores—they’re also difficult to sustain.
Cash advance loans are expensive and cannot be paid off early. And once the repayment schedule starts, the lender automatically deducts hundreds or even thousands of dollars from your account, making it more difficult to determine how much cash you really have on hand. You may be left feeling like you’ve solved one problem only to find you’ve caused a new one.
Learn more about the dangers of MCAs in the construction industry.
The problem with lump sum payments
Many contractors act under the mindset that if they could just get that extra $100,000 they need, everything else would work out. But that is often not the case.
A Cycle of Debt
Think about it from a personal finance perspective. If you as a business owner see that one of your employees immediately directs their paycheck to a payday lender, you can guess that employee is in a challenging financial situation. You hope it’s short term, but if you see the same behavior week after week, month after month, you know your employee is losing hundreds of dollars to fees and interest and is stuck in a spiral they can’t easily escape from.
By continuously turning to a factoring or daily debit company, your business is in the same boat as that employee. And like him, the situation is stunting your financial growth by spending money on interest rather than setting it aside for your next big project.
Backward Allocations
Properly allocating the lump sum once it comes in is often the worst part for subcontractors. If the money is spent working backward and paying for work that was already done, you’ll find yourself short again and likely need another loan to make it through to the next pay out. And the next. And the next. Each loan means more profit flying out of your pocket and into the lender’s.
And if the unexpected happens, like a weather delay or a change order, there is even potential for you to lose money on a particular project. Those cases put tremendous stress on the entire business model and put your future projects at risk.
Learn more about commercial construction financing.
Cash in on opportunity
In a perfect world, a subcontractor would grow slowly, setting aside money for each new job you pick up in order to fuel any upcoming projects. You’d have a great track record with estimating project costs low enough to keep you competitive, but have the bid high enough that you can turn a healthy profit and manage any setbacks that will arise.
The good news: Now is a great time for contractor growth.
The U.S. economy is booming and the construction industry is seeing explosive growth. Dozens of airports around the country are under major construction, or are ramping up to start their renovations. Developers and Fortune 500 companies need contractors now more than ever to build their massive technology centers, enormous housing developments and sprawling office parks. Opportunity is everywhere.
Now is the perfect time to grow your business, whether that growth is $100,000 to $500,000 or $3 million to $10 million. The trick is in doing your research to make sure you are financially prepared to make that leap.
A Cash Flow Partner
One of the best ways to move your business forward is to partner with a company that is committed to your mission and is knowledgeable about your industry. You need a company that is able to offer you the funds you need when you need them and sets a repayment plan in line with the cash flow cycles of your business. Having such a partnership allows you to focus on doing the high-quality work you were hired to do and minimize the stress of cash flow management along the way.
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