Often when small businesses enter into contracts with clients, they require outside funding to be able to pay their employees and purchase materials so they can complete the work. One option to obtain the working capital you need is contract financing. Here is some information about this form of funding so you can assess whether it is the right fit for your business.
The Basics of Contract Financing
Contract financing provides you with a cash advance of up to 90 percent of the payment stipulated in a contract with a client. It is an unsecured loan, which means you don’t have to put up any collateral. When the project has been completed, your customer sends the payment to the financing company instead of to you. If your payment is broken into several milestones, this allows you to receive the funds immediately upon invoicing your clients instead of weeks or months later.
Qualifying for Contract Financing
Lenders consider several factors when you apply for contract financing. For instance, they will want to know how long your business has been operating, your average monthly billing amount, and if you have a record of completing projects on time. They also want to know the credit rating of the client for whom you are performing the work. Additionally, they will want to study the signed contract that is being financed.
The Steps to Obtaining Contract Financing
First of all, you need to sign a contract with your customer for the work you are about to perform. This contract shows the lender the specific amount of funding required. You then present all of the qualifying information the financing company needs. Once your application is approved, you submit an invoice to the lender as each milestone task is completed and the lender, in turn, invoices your client. When your client pays the lender, you will receive most of the invoice amount immediately and the balance, minus fees.
For more advice on obtaining contract financing, get in touch with Triport.