Construction Trade Subcontractors Finding Alternate Financing Solutions

Aug. 19, 2010 - PRLog -- Construction trade subcontractors have long struggled with meeting their working capital needs in a notoriously slow paying industry.  Now, In the continuing challenging economic environment, construction subcontractor executives are relying ever more on alternative methods for financing working capital.  

Payment terms for subcontractors in the construction industry can run anywhere from 30 to 90 days or more.  The issue is further complicated by typical subcontract agreement language which contain "paid when paid" clauses, meaning that the subcontractor is not owed the money until the general contractor is paid by the owner. The end result is that many firms struggle from week to week trying to maintain sufficient cash flow to fulfill ongoing contracts.  As one industry executive recently noted, "this business is tough enough without having to constantly worry about whether there will be enough cash to meet payroll and pay material suppliers each week."

This issue has become even more prevalent recently, due to the economic downturn.  With many banks unwilling to lend the needed working capital right now, subcontractors have been seeking alternative financing solutions.  One such alternative is construction receivables financing, whereby subcontractors can receive an advance (typically 70%) on their pay requisitions. Companies are then paid the difference less a discount fee from the lending source, once payment is actually received from the contractor.

Another financing alternative, for those subcontractors owning heavy equipment, is sale leaseback financing, whereby the equity in existing equipment is used to provide a company with working capital. The equipment is purchased by the lending source and leaseed back to the business.  Once all the lease payments are made the business owns the equipment again.

A lesser known financing alternative are stock loans, which allows one to use publicly traded stock as collateral for a low interest loan, without the risk of a margin call.  The loans are typically interst only with 3-5 year terms and loan values ranging anywhere form 40% to 80% of the current stock value, depending on the stocks.  Further, there is no personal recourse associated with the loan.

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Commercial Capital Strategies Group is a national commercial finance company working with businesses of all types on their financing needs. Financing programs include Commercial Real Estate Financing, Equipment Leasing, Medical Financing , Accounts Receivable Financing, Factoring, Bridge and Hard Money loans, SBA Financing, Business Acquisition Financing, Stock Loans, Private Equity and more.