Financing The Sector
Businesses within the construction sector are continuously facing a number of unique challenges. Challenges that include the rising costs of raw materials, extended payment terms and ever increasing legislation.
Coupled with this traditional banks are becoming more reluctant to provide sufficient working capital to businesses within the sector. With the growth in construction projects though, securing appropriate levels of cashflow for the construction sector is critical to a business’ ability to take advantage of such opportunities.
Construction cashflow finance facilities are highly specialised products. But our experience structuring and arranging construction cashflow finance facilities as well as out network of specialist lenders takes the hassle and worry about funding your next project.
Construction Cashflow Finance: Short Term Funding Need
- Facilities are simple and quick to establish.
- No ongoing contractual obligation.
- Multiple drawdowns and early repayment permitted, at no extra cost.
- Pay as you go pricing structure with transparent costs and no set up fee, arrangement fee or ongoing maintenance facility charges.
- No pre-requisite for a strong balance sheet or a long history of successful trading.
- One-off or repeatable transactions.
- Low levels of reporting.
- Up to 80% advanced against applications or invoices.
- No tangible security required.
Construction Cashflow Finance: Funding Long Term Growth
- Designed to boost cash flow over a sustained period and aimed at leveraging cash against the whole ledger to release an initial advance of cash and then further advances with each invoice.
- Construction cashflow finance facilities bboost cash flow to take on multiple orders.
- Grow safely as the facility grows with your business.
- Negotiate better terms with suppliers.
- Help with long term planning and growth strategy.
- Enable acquisitions of competitors.
- Advancements rates up to 60% depending on industry sector.
- No tangible security required.
How do these facilities help?
- Boost cash flow: Don’t wait for your debtors to pay. Release cash tied up in your applications to increase buying power with your suppliers and fund increased orders from your customers.
- Fund growth: Generating cash from your sales early gives your business the competitive advantage to fund increased orders.
- Fund acquisitions: If you are looking to expand through acquisitions generating cash from yours or your target companies sales ledgers can provide the funding required without the need for personal investment.
- Help with collections: Outsource the collection of your invoices to the financier to increase the time you have available to drive growth and sales, whilst maintaining a positive relationship with your debtors by letting the financier have the difficult task of chasing payments.
- Credit protection and credit risk advice: By using your financier’s customer risk departments, you can undertake due diligence into the creditworthiness of your existing and new debtors, and ensure that your growth is safe. Use the financier to protect those sales against bad debts or protracted disputes.
- Flexible facility: The on-going management of the facility enables the financier to get close to and understand your business, your issues and your requirements. This makes them best placed to increase your facility as your business grows or your circumstances change.
- Limited security: The financiers security is the sales ledger. Often they will require a nominal unsecured personal guarantee, however there will be no requirement to offer tangible security, as would normally be the case with term loans or overdrafts.
How Oakmead Finance can help
At Oakmead Finance, our dedicated construction cashflow finance team have valuable experience providing working capital facilities to the construction industry.
By working with specialist lenders, who are backed by quantity surveying and contract law teams and by arranging funding against applications for payment, stage invoices and project milestones, we have gained an established track record of providing tailored facilities to contractors and sub-contractors
Contact us if you would like to explore the options available to you.
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Case study 1
We were approached by a south west based sub-contractor to the rail industry. Despite having only been established for 9 months, they had seen their turnover grow to just over £1m on the back of 1 contract with Network Rail. This was being funded by a small £25k bank overdraft.
The startup nature of the business, the concentrated and contractual nature of the debt, and the limited security on offer from the directors, meant that they were struggling to obtain further bank funding.
Other providers of finance were prepared to do fund the business, but only at an unacceptably high cost.
We were recommended to them by a mutual client and they approached us to act on their behalf to source a competitively priced facility, that would provide the working capital they required.
We invested our time to understand the contractual nature of the debt. We then secured QS advice on contracts and spent time meeting with specialist providers to get them comfortable with the single debtor nature of the ledger. By doing this, we were able to tailor a flexible solution for the business by providing:
- A competitively priced fee confidential facility tailored to their business and based on a fixed fee model
- A 45% advancement rate against their applications
- No restriction to their funding, despite the high concentration of debt to their major creditor
- A confidential facility to prevent the need for disclosure to their creditors
Off the back of the construction cashflow finance facility arranged, the business has managed to increase their turnover and their profitability.
They have also reduced their creditor pressure by using cash to pay their suppliers on time and have managed to avoid directors’ loans into the business or having to raise equity capital which would have diluted the existing shareholders’ ownership.
“Finding finance was proving difficult. Other brokers we had spoken to hadn’t manage to secure us the funding we needed or on terms we liked. Oakmead were different. They came down to meet us, were honest and upfront and kept us in the loop at every stage. I am sure that this approach to business is why they were able to come up with a perfect fit for us first time. We have a facility which works and a lender which is perfectly suited to our business.”
Case study 2
We were approached by an established and profitable south east based sub–constructor specialising in the manufacture and installation of steel staircases. Due to the level of construction projects being undertaken in and around London and the south east, they had found themselves experiencing rapid growth.
Due to the contractual nature of their debt however, their bank was not prepared to increase their existing overdraft.
The management team of the sub-contractor were under pressure to source a competitive source of finance, so that the business had the working capital it required to fund the anticipated growth.
We were approached by the company’s accountants due to our experience and knowledge of the sector and because of our ability to structure the right solution for such businesses.
After meeting with the management team to understand the business and their requirements, and analysing their contracts, we were able to quickly identify a number of specialist lenders who would have appetite to provide funding to the business.
By working with the lender on our client’s behalf, we were able to tailor a flexible solution which:
- Offered a cheaper, fixed fee facility compared to other providers of construction finance which gave a fixed and transparent cost to the facility
- Advanced at 55% against applications to generate adequate working capital
- Provided a confidential facility, to prevent the need for disclosure to their debtors
Off of the back of the construction cashflow finance facility we had arranged the business has also managed to increase their turnover and their profitability. They have also reduced their creditor pressure by using the cash to pay their suppliers on time and managed to avoid directors’ loans into the business, or having to raise equity capital which would have diluted existing shareholder’s ownership.
“I’ve been in the industry over 20 years and didn’t think these types of facilities were available to construction firms. Business is booming and we can now capitalise on this growth and this is thanks to Oakmead Finance. Dealing with them really was quick and simple and once they knew what we wanted, they delivered. Great service.”
Oakmead Finance Ltd is a company registered in England & Wales with company number 09478864. The registered office address is Lynwood House, Crofton Road, Orpington, BR6 8QE
Construction Cashflow Finance facilities are not regulated by the Financial Conduct Authority.