07 Jun How Construction Companies Can Benefit From Payroll Financing Loans
Managing cash flow is an issue for any company, but it is one that is perhaps most acute in the construction industry. Whether due to seasonality, unexpected change orders, payment retention, or slow-paying clients, cash flow is undoubtedly the most common pain point for construction business owners. In a recent survey conducted by TSheets and Levelset, a whopping 87% of construction companies reported experiencing cash flow issues. While many of these businesses turn to general contractor loans or construction loans, these are not always the cheapest or most cost-effective solution.
Despite the prevalence of these issues, many companies do not know where to turn to acquire hard money. This leads many to construction factoring, which is not the best way to secure a line of credit for contractors and staff. Instead, payroll financing offers better terms and greater security when cash flow issues arise.
Common Cash Flow Issues in Construction
With the COVID-19 pandemic causing significant issues for supply chains, distribution, and overall project progress, managing cash flow has become that much more crucial — and burdensome — for construction business owners. As a result, construction business loans for contractors have never been more commonplace. With the help of construction finance companies, contractors can keep their businesses up and running — even during a global pandemic. However, many of these loans come with hidden costs that can do untold damage down the road.
Overhead expenses, especially payroll, are known to be a big burden for most construction projects. Payroll is a major expense, often accounting for 30% of a project’s value, and is a bi-weekly obligation. Therefore, a construction project loan may not be enough on its own to keep your business strong. Instead, a business loan for payroll is a fast way to stop cash flow issues before they start — without taking on substantial risk.
These issues are not just limited to construction companies either. They can affect any of the related businesses, including:
- General Contractors
- Independent Contractors/Subcontractors
- Property Services Firms
- Architectural Firms
Real-Life Case Studies on the Benefits of Payroll Financing
Typically, construction businesses find themselves in need of financing due to rapid growth or slow-paying receivables. Here are just two quick examples that illustrate how payroll financing (as opposed to standard construction business loans) can provide a valuable, low-cost solution to your cash flow issues:
- A relatively new construction company won the bids on multiple projects, prompting a hiring spree. As their payroll kept increasing, the gap between their bi-weekly payroll and the time it took to collect on their pay apps was proving to be an issue. They secured payroll loans for contractors through us, giving them the funds to take on more projects without any delays.
- Due to COVID, an established, cash flow-positive Construction Expediting and Design firm had a large number of unpaid invoices, which left them temporarily short of $100,000 on the payroll. Fortunately, they did not need to turn to an expensive construction business line of credit. Instead, they were able to overcome their cash flow issue and pay their staff on time with a payroll funding loan.
The Bottom Line
These examples are extremely common in this industry. However, thanks to payroll financing from payroll funding companies like us, these issues do not need to plague businesses for the long term. In some cases, organizations may need a one-time payroll financing just to get over the hump, while others may need to utilize payroll financing on a more consistent basis.
Cash flow issues may affect many construction and contracting companies, but it doesn’t have to be the case for your business. If your organization requires short-term funding to operate efficiently, call Payro Finance today to see how we can help.