Flexible, creative, and accessible — or rigid, unimaginative, and challenging? If the first set of words sound good to you, and the second don’t, you can understand why many construction companies and contractors choose alternative financing — which is flexible, creative, and accessible — over rigid, unimaginative, and challenging traditional financing.
The fact is, many banks are shying away from the construction industry because they were “burned” when the real estate market imploded from 2007 – 2009. Providers of traditional financing remember all too well the beating they took when many construction companies and contractors failed — and they’re simply unwilling to take on that degree of risk again.
Good thing for construction professionals that alternative financing providers like Clear Skies Capital (CSC) are still willing to invest in their success.
Construction companies and contractors typically need two types of financing: working capital loans and equipment financing. Let’s look at how banks and alternative lenders address these needs.
Working Capital Loans
As you might surmise, timing is everything when it comes to securing working capital loans, and that’s an area where banks and alternative financiers are sharply different.
Banks take at least 30 days to process requests for working capital loans — which won’t solve an immediate need — while alternative financiers can provide funds within one business day. Immediate funding is the perfect solution for contractors that need to make payroll while waiting for progress payments; waits of 30 days or more won’t get them out of a jam. CSC normally does same-day funding, with 72 hours being the longest time it takes to fund working capital loans.
What are some of the other benefits of alternative financing?
- No collateral requirements. Banks may require collateral like real estate or equipment — which builds time into the process to get appraisals. CSC does not require collateral for working capital loans.
- Less paperwork. The application process to receive bank financing is lengthy and can be complex. Alternative financiers have streamlined the process by requiring paperwork that’s easier and faster to complete.
- Access for early-stage businesses. Banks typically require a strong track record to secure working capital loans, which is something younger businesses won’t have. Alternative financiers will fund early-stage businesses —typically those that have been operating for at least six months.
Having access to the right tools to do the job is critical for any construction company or contractor, and that often means purchasing expensive equipment. The information presented above holds true for equipment financing, with a couple tweaks: funding time is normally three days and no additional collateral is required — since the equipment being financed serves that purpose.
In addition, while banks will finance used equipment, they do so at significantly lower advance rates than alternative financiers, and they may limit how old the equipment can be. CSC has no age restrictions on equipment — and streamlines the process by paying the invoice for the equipment purchase directly.
With banks still hesitant to lend to construction companies and contractors since the crash is still fresh in their minds, a great alternative for working capital loans and equipment financing is alternative funding provided by companies like CSC. There is money out there; you just need to know where to get it.