When facing short-term cash flow issues, construction companies have several funding options available. However, after learning the disadvantages to traditional bank loans they often turn to MCAs. But there are specific times when invoice factoring is a much better alternative. When is that?
A Reminder… What Exactly is Factoring?
Like the Merchant Cash Advance, Invoice factoring also offers quick access to temporary working capital over both waiting on client payment or working with banks. Unlike the MCA, which is a loan, Factoring involves the selling or your yet-to-be-paid invoices. The factoring company will “advance” a percentage up front, then return the remaining percent after your client pays them (less their fee).
An example – your business lands a contract to pave the parking area of the new green space in your town. You complete the work and submit your invoice to the city. But because they typically take 60 to 90 days to send payment, you are going to have difficulty paying your team. Applying and (hopefully) receiving a bank loan will simply take too long. Enter factoring.
Banking vs Factoring — Construction-specific Comparison
Aspect | MCAs | Factoring Companies |
---|---|---|
Application Ease | ||
Speed of Application & Funding | ||
Viability | ||
Funding Amounts | ||
Fees and Rates | ||
Credit Requirements | ||
Credit Score | ||
Collateral Requirements | ||
Client Relationship | ||
Additional Concerns | ||
Additional Helpful Services |
Both MCAs and factoring have their place in the financial arsenal of small businesses like construction. Knowing which to choose and when is the key.
Which is the right fit for you? Let’s talk.
About the Author:
Curt Powell — Executive Vice President
Joining the team in 2016, Curt serves as Executive VP at CapitalPlus Financial Services, a direct lender based in Knoxville, Tennessee focusing exclusively on the construction industry. During that time he has guided thousands of contractors, subcontractors and business owners through the financing options to find the best solution for their unique needs.
Curt is a member of The International Factoring Association, The Association of General Contractors, and the Construction Financial Management Association.
CapitalPlus was established in 1998 providing over $1 billion in factoring funds empowering thousands of construction companies all over the US.