Startup Capital for Contractors

By: Micah

Can I Factor a Government Contract?

The correct answer is: We can get you startup, mobilization capital, exactly what you want, but you didn’t ask the correct question.

Why Can’t I Factor it?

Factoring is a particular type of financing using your invoices as collateral towards a line of credit. However, factors are only purchased once work has been completed.  Mobilization financing is a type of financing that is completely designed for the pre-contract or purchase-order stage of your business.  Instead of relying on collateral, the contract itself speaks volumes that someone trusts you to complete this job, and all you need is to hire workers, buy equipment, order parts, etc. We come in once you have won the contract.

How Does my Personal Credit affect this?

At the heart of this financing, this is a loan. However, a successful business owner might have less than stellar credit due to the work that’s been done to get to the stage where he or she has won a very prestigious contract. Or, if the business owner does have stellar credit, there are avenues to for unsecured business lines of credit.

So, basically, personal credit is a very minute consideration.

How Does it Work?

The advantage of working with American Business Funders is that depending on the contract, and your particular need, we have a solution. Some need a line of credit. Some contractors need a loan that has a one-time balloon due in one year. It will depend on the size and the duration of the project which type of product we work out makes sense for your business. So I’ll just give you some case studies!

Case Study 1: Subcontractor in New York

Client has a contract with the MTA to redo parts of the subway, and they will pay him $3 million.  He needs to get ready and order materials and hire extra workers, or he can’t even start. He also does not want to be paying interest until he can use it.  He needs about $500-600,000.  ABF arranged a “line” for him for $600,000 (20% of the contract amount), that is designed to be paid back as his distributions from the progress billing are completed. If he takes $100,000, he has too much material he can’t use.  So he takes $50,000 to buy material day one, a month in he takes another $50,000 which saves him on interest payments, but he knows it’s available when/if he needs it.

Luckily, the MTS is a fast payer. he doesn’t need a factor, but if he needs to make payroll and they didn’t pay him, we have an inter-creditor agreement in place with a factor who can take the money owed to him and pay out the startup lenders and stop the interest payments on those funds, and the rest he can use to make payroll.

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