Construction Finance is a specialist finance product designed for contractors and sub contractors.
It allows you to get quick access to cash tied up in invoices that you need right away.
Construction Finance Guide
What Is Construction Finance?
Construction Finance provides contractors and subcontractors with funding. The loan is taken out against the value of invoices you’ve raised on completion or part completion of work carried out for staged contracts.
The aim of construction finance is to ease the cash flow pressure on contractors that the industry can cause. It helps where you are forced to pay upfront for materials and other costs while you have to wait for up to 120 days to be paid on your raised invoices.
How Does Construction Finance Work?
It is a type of factoring designed to ease your construction company cashflow by advancing cash secured against your applications for payment. By using construction finance you can get access to owed invoices without waiting for them to be paid.
The cash raised can be used in various ways. You could use it to fund new projects, pay bills, buy materials and equipment or any other situation that might crop up on site or in your construction business.
The Construction Finance Process
- Application for Payment – The invoice is raised and you send it to the funder
- Funds Sent – You can have access to the funds within 24 hours
- Collections Made For You – Lenders can confidentially collect the invoice for you
- Remainder Paid – When the invoice is settled you are paid the balance, minus the agreed fees
How Much Can I Borrow With Construction Finance?
There are various factors that will determine the level of construction finance you can borrow. Lenders will look at the credit worthiness of your client, your turn over and credit history and your company position.
In some cases you will be able to get a pre payment of up to 70% of the invoice, within 24 hours of raising the application for payment.
How Much Does Construction Finance Cost?
The actual cost for your facility will depend on your own business circumstances. Lenders will take into account your credit history, nature of your business and the level of your turn over.
Facilities are charged by way of a Service Charge and Discount Charge.
The Service Charge will be a small % of your annual turnover.
The Discount Charge is an agreed % over Bank of England base rate.
Am I Eligible For Construction Finance?
If any of the following apply to you and your business you could be eligible for construction finance:
- You’re a subcontractor or main contractor
- You raise the invoices for stage payments
- Applications for payment are raise by you
- You have a CIS UTR number
What Are The Benefits Of Construction Finance?
Having fast access to your cash is the major benefit, often within 24 hours. It will allow you to pay staff, buy materials or use the cash in any way your business needs.
Unlike some finance this can be set up so your customers don’t need to know you have a facility in place.
Construction finance has several benefits specifically designed to help the building industry:
- Speed – You get access to cash within 24 hours of invoice being raised
- Convenience – The funder can chase the invoice for you
- Confidential – Your client doesn’t have to know you are using a construction finance facility
- Cash Flow – Improves your cash position helping your business grow
- Pay Bills – Keep on top of payments and other bills like wages without waiting to be paid yourself
Certified Or Uncertified
There are options for either, though if the application is certified there is likely to be a higher amount available to you.
Bad Debt Protection
You can protect yourself against bad debt, using bad debt protection. This can cover up to 90% of your bad debt or against a customer insolvency.
Other Construction Finance Options
You can take advantage of our large panel of lenders for other finance options that could benefit your construction business.
If you wanted to buy new tools or equipment, Asset Finance may work for you. We have funders who can help you buy excavators, dumper trucks and other machinery.
You can also use asset finance to buy company vehicles including cars and specialist van finance.
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