What Is Contract Financing and Do You Qualify?

Published On December 13, 2018 | By Clare Louise | Finance

As a small or growing company, you may not be qualified for receiving a conventional bank loan. So what happens when a big project comes your way but you don’t have enough resources to complete it? Do you pass a once-in-a-lifetime opportunity for fast growth? Or, do you seek alternative options?

Luckily, commercial lines of credit are not the only viable options.

There’s a way for you to gain access to additional resources for projects that guarantee a hefty ROI without reaching out to online lenders too. It’s called contract financing, and unlike conventional bank loans, it doesn’t require your company to have a strong credit record. It vets your client instead.

Here’s how it works.

What Is Contract Financing?

If you’re employed for a project that you don’t have enough money to complete,construction equipment financing is a way for your company to receive a cash advance based on your client’s credit record. This is achieved thanks to a third party – a company that helps you work out a contract and then execute it.

In order for contract financing to work, the contract between your business and the client must be based on a set of targets and payments specified for each of these milestones. For every next project milestone, your business will receive a payment for an agreed-upon percentage of the total amount.

The best and most beneficial thing about contract financing is that your company will receive most of this total amount as soon as the contract between you and your client is evaluated, approved, and signed. From there on, every invoice will be paid for one day after you submit it, and not in 60 days.

Are You Qualified Enough?

In most cases, a contract financing company will approve the contract between you and your client if:

  • Your client has a good credit rating.
  • Your company’s portfolio proves that you are efficient enough to honor the contract.
  • Your company has prepared a clearly defined set of milestones, deadlines, and payments.

Contract financing is a great solution for companies that need an additional boost to get the project rolling but cannot meet the loan requirements set by banks. Why miss an opportunity to earn a lot of money and add a huge and successful achievement to your portfolio because you’re short on cash?

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