Ever since the upheaval caused by the Great Recession of 2008 the construction industry has found it tough to get bank-rolling for projects. Even for other critical needs like payroll funding or material procurement, the traditional US business funding agencies refused to lend to the construction businesses. Now, construction activity wasn’t going to come to a standstill just because the traditional lenders classified construction activity as high risk. It is true that there are risks in the construction industry and the 2008 crisis involved the real estate industry in a big way but the crisis was not caused by the real estate industry. It was caused by the faulty functioning of the banking industry and its poor handling of mortgages.
Traditional lenders create barriers
To come back with an across-the-board denial of credit to the real estate industry citing a higher risk perception is like stopping water supply to the fields because the product didn’t sell. Their refusal to provide business capital loans to construction companies created a gap that would be filled up sooner or later. Construction activity just cannot stop because one source of credit has dried up.
It is a $1.36 trillion industry in the United States and a market of that size has the strength and resilience to find solutions to its problems. Many of the cash-rich entrepreneurs of the real estate industry decided to launch their own direct funding ventures that would fund businesses in their industry as well as in other industries.
Direct lenders step in to fill the void
If you look at smaller construction companies, they need regular short-term credit to meet payroll, equipment leasing and servicing expenses, and material procurement among others. The traditional lenders never lend to them anyway and that has opened up opportunities for new direct lending agencies to extend credit to them.
Thankfully, the construction industry in the country has healthy growth and that means the order book of most construction companies, big or small, has a long list of projects. They get their payments in 60-120 days from completion of work and often face cash shortages to meet payroll expenses, equipment leasing costs, etc. Direct business funding companies offer them credit on the basis of invoice-factoring wherein the invoice acts as a kind of collateral.
Developers getting into direct funding
It is natural that there are cash-rich construction industry entrepreneurs especially when we consider the size of the industry in the United States. They are stakeholders in the construction industry which is facing barriers to accessing credit from traditional sources of funds. In order to make easy credit available for fellow industry stakeholders, they have launched direct business funding companies.
Invoice factoring is a highly effective and acceptable mode of funding for smaller construction businesses. They also get long-term credit for asset procurement and business expansion, especially from direct small business funding companies managed by people who also run major construction businesses.
Direct Lenders Funding is a renowned lending agency that has a particularly strong record of funding smaller construction companies through the invoice factoring mode. The company has already extended funds of over $200 million to date.