Sertant Capital– An Overview of How Institutional Lenders Finance Progress Payments Schemes

A progress payment is a funding scheme for companies specializing as general contractors in the construction industry. These corporate enterprises receive regular cash payments according to the percentage of work they complete on a project. This significantly reduces their working capital issues when purchasing materials, arranging the equipment and employing labor. It ensures they do not face a cash crunch at the time of undertaking the project. They claim the necessary funds from their clients hiring by:

  • Billing them in stages as the work on the building project progresses, and
  • Rising invoices on them for the percentage of work they complete.

Sertant Capital – How do institutional lenders fund their borrowers’ progress payment schemes?

Sertant Capital is a renowned equipment financing company from Newport Beach, California. It offers a diverse range of capital solutions to businesses of varying sizes and credit profiles. These include refinancing options, off-balance-sheet financing schemes, sale-leaseback programs, capital, tax, and TRAC leases. Its specialists have a reputation for helping these businesses overcome their cash flow problems and expand their operations.

The specialists of this finance company say institutional lenders generally fund the contractors’ progress payment schemes. They use invoice factoring to convert their borrowers’ current unpaid sale bills into instant cash resources. For their services, financiers deduct their expenses and a percentage of the outstanding bills’ sales value. This amount represents their remuneration, and they reimburse the remaining sum of money to the contractors. However, institutional lenders use various techniques to verify and authenticate their borrowers’ outstanding client invoices. This enables them to minimize their overall risks. They even insist the contractors sign no-offset letters every time they raise the invoices. The contents of these documents include:

  • A written undertaking from the clients stating they have inspected the contractors’ work,
  • The clients are satisfied with the quality of the work the contractors have completed, and
  • The clients accept the contractors’ invoices and have no objection to paying the sale bills in full.

Why do contractors turn to lenders to finance their progress payment schemes?

Contractors often undertake new building projects with a small amount of capital. They do not have the money to meet most of their operating expenses. These include purchasing building materials, paying their employees, and suppliers. Many of them are generally reluctant to approach commercial banks to sanction them business loans. These lenders normally maintain stringent eligibility criteria which they expect their borrowers to comply with. Moreover, they insist the contractors have a sound credit history regardless of their businesses’ size and nature. This is why almost all of them turn to institutional lenders specializing in financing their progress payment schemes.

The specialists at Sertant Capital sum up by saying working with institutional lenders are a convenient way for contractors to run their businesses. These financiers are often willing to fund their progress payment schemes through invoice factoring. For this, they do not impose stringent eligibility criteria even if their borrowers’ credit ratings are low. This ensures the contractors get the cash they need to complete their construction projects without any difficulties. Only then can they continue their commercial operations.