There are a number of reasons why entrepreneurs in the construction industry are turning to alternative lending as a means of supplying the capital to carry out their operations. For one thing, bank loans are typically only approved for applicants who’ve been in business for many years, have a ton of assets to be used as collateral, and have a perfect credit history. Everyone else is pretty much left out. Here are some other reasons why the construction industry is benefiting greatly by the intervention of alternative lending, and what alternatives are available to contractors.
Excessive Collateral Requirements
In addition to the stringent requirements for eligibility, traditional lenders like banks will often require more collateral to be used than the face value of the loan itself. It’s not uncommon for a bank to insist on $800,000 worth of collateral assets to secure a loan which only has a face value of $500,000. Even if a business owner were able and willing to supply this kind of collateral, there’s always the risk that it could be lost entirely if a business takes a downturn and the owner is forced to default on the loan.
Alternative Lending Products
Whereas traditional lenders can basically only supply long-term loans to construction companies in need of funding, there are several other types of financial products which are made available by alternative lenders. Factoring is one of the most popular forms of financing, and this involves advancing the contractor an upfront sum of money in exchange for a percentage of their open pay app.
Mobilization funding aims at providing contractors the first draw of money which is needed in order to initiate a project, so they aren’t held back by a lack of funds. A merchant cash advance is another option which contractors can use, and which are made available by many alternative lenders. In this form of lending, there is a very high rate of approval, although repayment terms tend to be fairly high.
Are you interested in alternative lending?
If your company would benefit from alternative lending, we may be able to provide financial assistance for you. Contact us at Safe Harbor Commercial Capital, so our specialists can discuss some possibilities that will put cash in your hands quickly, for whatever business purposes you may need.