Contract financing is a loan contract between your company and your client that creates milestones with defined payments that you will receive as you make progress on the project. This is different than a traditional loan because it’s based on the creditworthiness of your client instead of yours.
How Does it Work?
In most cases, you will be advanced most of the invoiced amount in the beginning, while the remainder will be paid when the invoice processes- less a fee. Typically, the contract will identify the payments you will receive as you make progress on the project. This keeps your company from having to wait for customers to pay their invoices.
The finance company will look over the contract and take into account your ability to deliver on the proposed project as well as creditworthiness of your client. Then, if the funding is approved, you’ll be submitting your invoices to the lending company instead of your client.
Contract financing is good when your business has little or poor credit, which keeps you from being approved for traditional loans and credit lines. The loan is likely to be approved if the following are in place:
Client has good credit.
Your contract defines the milestones/payments.
Your track record assures the lender that you will be able to complete the work properly and on time.
Each lender is different, but they will typically look at:
How long you have been in business
Your monthly billing
Client’s credit rating
Where to Go
If you believe that contract financing is a viable solution to your cash flow problems, make sure that you get all of your information in order and contact Lighthouse Capital to move forward in this process. Keep in mind, this is not a traditional loan, but a form of factoring.