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• 11 Feb

  Construction Business Financing Against Applications For Payment

  Construction business financing is a broad term that can cover many aspects of the funding needed for business by builders and those trades allied to the building trade.

  It can mean the bank finance developers need to purchase land, through funding for sub-contractors that supply the sector. This article focuses on the latter, financing for trades that supply builders.

  Please take a look at our Guide to Construction Finance.

  Construction Business Financing

  

  When subcontractors supply the main contractor, they can be left out of pocket as they wait to be paid. Materials and labour may need to be provided up-front, well before the debtor pays. This creates a "credit gap" between supplying services and materials and getting paid. Finance against applications for payment or invoices can bridge that gap.

  Financing Applications For Payment Versus Invoices

  Our research suggested that about three-quarters of those supplying the construction sector raise applications for payment. This is instead of invoices. This is a technical difference, but one that can be a problem for many traditional invoice finance companies. There are many companies that finance invoices. However, only a select few specialise in funding applications for payment. Fewer still will finance uncertified applications for payment. Despite this, it is possible.

  Construction sector transactions are sometimes subject to detailed contractual obligations. Again, this is a problem for many financiers, but not for specialists. They overcome this issue by using the services of quantity surveyors to value the contracts and the debts that funding is provided against.

  Funding Levels Needed For Business

  Funding levels released within the sector are typically up to 70% of the transaction value. This can provide a significant cash boost to companies that have money tied up in unpaid applications or invoices.

  Charges And Fees

  The guide linked at the top of this article has details of how the charges work and examples of rates. These will be unique to your business. It is best to seek a tailored quote for construction business financing, rather than relying on approximations from example pricing, which may not reflect your circumstances. Getting a quote is free, so you have nothing to lose by finding out the rates and funding levels. No credit searches are conducted without your prior consent.

  By Glenn Blackman