In order to undertake a contract, a business requires resources and expertise. If they do not have the funds, this can lead to losing the contract. This is where contract financing comes in. Contract financing is a way for the business to get advance funding on a contract that has not been completed.
Most construction contracts are paid for throughout the contract or once it is completed. Either way, business owners must invest their own money to prepare and execute certain projects. If the company is unable to raise the funds needed to execute the contract, the client may cancel it and choose a competitor instead.
What is Contract Financing?
Simply put, contract financing is the technique used by businesses to obtain a commercial real estate loan against the contract. The lender focuses on the creditworthiness of the borrower instead of the business.
If you are considering applying for funding, you must be aware that the lender is going to analyze the contract terms and prices. The approval process for contract financing is different from traditional bank loans.
How to Qualify for Contract Financing
Contract financing is a form of secured financing. It is different than a conventional business loan. Lenders will take extra precautions and look at other factors. If these are not available, they may not approve the loan. The three factors used by lenders to determine qualification for contract financing are:
- Monthly billing
- Time in business
- Customer rating
Contract Financing Types
When it comes to contract financing, there are three primary types:
Lender-controlled contract financing
Borrower-controlled contract financing
Purchase order contract financing
Getting Contract Financing
It’s important to note that contract financing is not typically an option with banks. This funding comes from private firms found online or locally. They usually offer several different packages that suit a variety of needs.
If you are putting in a bid on a contract, you may find this helpful because it will provide you with the funding you need when you need it. These firms are not as tightly controlled as traditional banks and will need time to examine the contract before offering the funding.
Contract financing is available to companies that have secured a contract or gained a bid on a government contract. When the eligibility criteria are met, they will receive the funding based on the terms of the contract and their performance history.
Conclusion
Contract financing allows companies to get the advance funding they need to execute a contract. If you are interested in learning more about contract financing, contact WCK Financial. We’ll walk you through the process and help you learn more about your financial options.