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Bank Lending

More cash-strapped building contractors turning to invoice factoring

By CreditMan Monday, April 22, 2013

This year has already seen an unprecedented number of contractors in the building trade services turning to alternative finance such as invoice finance to fund working capital as well as growth, according to corporate finance brokerage Embark Finance.

“We have seen a marked increase in the number of general building contractor businesses, such as electrical contractors, demolition specialists, woodworkers and civil engineers, being referred to Embark to support them in finding essential finance for their business,” explained Mike Bailey and Richard Keenan, co-Directors of Midlands-based Embark.

“The sad reality behind this trend in our view is that contractors are being moved on by their bank, the traditional funding source, which no longer wants this type of business on their books. Just as common, is the contractor looking to grow to take advantage of new business and income streams, but who has hit a brick wall when seeking to borrow money, as few lenders are keen to fund this type of contractual debt.

“By their nature, contractor-based businesses raise applications for payment and are usually tied into very contractual sub-contract agreements that are tough to collect-in should the business fail. These characteristics simply don’t appeal to the majority of banks, but through our established relationships with the key niche players outside of the traditional finance sources, we actually have the ability to find a home for these deals.

“This challenge is not simply confined to the smaller contractor businesses,” they added, “with a high proportion of the latest deals up to £1.3M of lending for ‘sizeable’ players in the sector.

“Unfortunately, a lot of building trades contractors are wasting a lot of time trying to track down finance for the business via traditional routes that continue to see the construction sector as a risk. However, Embark specialises in sourcing alternative finance and can direct them to the right, and receptive, lenders to arrange finance quickly.”