Construction Financing Explained

Construction Financing helps different industries go through different factoring challenges. Some of which are more frustrating than others. One industry with unique differences is the construction industry. It can be much more labor intensive when it comes to due diligence.

Subcontractors have found it very difficult to get financing from banks. This is because they are now required by regulators to hold reserves against those loans.

A lot of these subcontractors who can’t get bank financing are expert trades. What’s more? They once worked in larger companies. Many of them started their own companies. This occurs after losing their jobs during a recession. There best option may be to resort to Construction Financing

Though they may not be well equipped with managing a company. They are experts in their fields. This lack of experience means there’ll be hurdles to overcome in underwriting. The financial statements they present are not ideal. Also, A/R and A/P aging also may not be accurate. Therefore, there is a need to provide more diligence in other areas.

Here are a few of the different challenges involved with factoring and construction:


General contractors hold 5-10% of each billing till the entire project is finished.

Progress Payments

Contractors have to bill as they progress, especially for larger and longer jobs.

Contract terms

You’ll most often find terms like “paid when paid” and “pay if paid” in construction contracts.

Lien laws

These laws vary in each state and change all the time.

Lien releases

Subcontractors have to execute and provide lien releases for themselves. They will also provide this for any extra workmen. They have used on a particular job in acknowledgement of payment receipt.

You have to make sure you know the ins and outs of all these. If you choose to use invoices for the construction industry. You must also be conversant with the various jurisdictions your clients are in.

Factoring companies also face a lot of challenges around lien releases. These challenges go from the ever-changing lien laws to the forms. Then, to filing notices, and timing of filings that varies in every state.


The contract terms involved, make the construction industry more complicated. Businesses like transportation and staffing have less stress in comparison. A typical example is the “pay when paid” contract term.  The payment and term of invoices are extended to 45 or 60 days. It is also possible to get a 90 to 120 day extension with government projects.

Furthermore, the progress payment precondition is often subject to the successful work. It’s also subject to the entire scope of the project. This means that items are to be approved by the contractor-in-charge. It may also be an architect, and then the owner. This delays the payment process and creates opportunities for disputes. 

Another issue is noting all the subcontractors and workmen on each job. Any unpaid subcontractor can in the future jeopardize opportunities for the factoring company.

There are construction fees valued at over $956.1 million in 2014. There is also nonresidential construction. It is 6.4% above in 2013 on the strength of the commercial/ industrial sub-sector.

It is beneficial to partner with a factoring company who specializes in construction. This works more when you can’t provide the working capital they need. Many people resort to Construction Financing. Also they may resort to technology as well.

Customer is king in order to create a mutually beneficial venture. Having a partner in your industry, ensures clients to get what they need at all times.

Integrity, Honesty, and Service…

Sammy Ahdoot – President of National Advance Group


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