Overcoming Cash Challenges to Grow your Business
Experts in this video
There is no shortage of work in the construction industry right now. Yet, upfront costs are barriers for many specialty contractors interested in taking on more, or bigger, jobs.
In this webinar, we will share a real life case study from a customer who was able to grow his revenue by 30x in one year.
We’ll also cover:
- How to combat some of the biggest challenges facing the industry
- Discuss our 2022 Construction Cash Flow Report and how you can apply the findings to your business
- And of course… 4 tricks of the trade you can start using today
If you’re a speciality contractor looking to grow your business in 2022, this webinar is for you. Save your spot now!
Speaker 1 (00:04):
So I’m gonna go ahead and get started. I’ll introduce myself. I’m Reid Renfro. I’m a construction financing expert here at level set. And during this webinar, we’re gonna discuss some of the challenges that, that you all face in construction issues that, that are common among contractors. And we’re gonna talk a little bit about different solutions that we offer in other industry solutions that might be able to help out your company. So again, feel free to jump in with any questions and with that if you wanna go to the next slide, just go over a briefly kind of what level set does if you haven’t heard of us before and don’t know really what we do. We really empower contractors to get what they earn to keep and maintain a positive cash flow and really be able to protect their business.
Speaker 1 (00:52):
So we have lean rights management solutions. You can go on our website and learn a lot, get a lot of information about lead rights. We offer services to help you manage those. We also offer financing for materials. So if you are, are paying for materials at the beginning of jobs we work with suppliers, work with you to get the, the materials you need and get them out and installed on the job and make sure that you have enough cashflow to keep your business running. We have a number of other services and legal plans, a few other things, so all focused on construction. Everything we do is working with contractors suppliers everyone in the construction industry. So before we jump into the meat of the presentation we’re going to have a pop quiz. And if you can jump back in the chat, chat with your answer, the person that gets closest to the, this number, we’re actually gonna give a $25 gift card.
Speaker 1 (01:54):
So the, the question is what percentage of small businesses don’t get the funding they need from a bank when they apply? So that’s the question. This is from the answer is from a federal reserve 2021 small business credit survey. So you can jump in the chat, just put in a number for what percentage of small businesses, when they need funding from a bank, don’t get the funding they need. We have 42, 25, 85, 64, let’s see, 68, 80, 75, few more 80 very high numbers. Sounds like you all might have experienced this before. Any last guesses before we move on.
Speaker 1 (02:43):
Okay. Dusty, if you wanna go to the next slide, I believe Emily is the winner. 62% of small businesses. Don’t get the funding they need when they, when they go to a bank that’s a really high number and this is for all small businesses. It’s definitely probably higher in construction. This isn’t construction specific, but tons of small businesses, they go to a bank, they go to their local credit union. They don’t get the number they need. Emily was, I think Emily might have read that, that survey from the federal reserve, cuz she was almost right on there. So great job, Emily will get that gift card out to you. But just, just one, one number we wanted to highlight before we jump in. So we go to the next slide. Talk a little bit about the agenda. We’re gonna talk about common ch cast challenges that contractors face some solutions to grow your business.
Speaker 1 (03:34):
And then we’ll talk a little bit about a case study from a few of our customers that have used materials financing to grow revenue. Over 30 times in, in just a few years, moving on to the next slide. We’re gonna jump into some of the challenges that that contractors face. So I’m sure many of you have experienced this, but having a lack of cash on hand. So this doesn’t mean your business isn’t operating well. You can have a lot of projects going on. You can be growing and you can really still be struggling to, to pay the bills, to pay for your materials, to pay your, your labor pay all of your overhead. The last few years continue has continued to increase all of those costs for, for everyone in construction, whether it’s labor, it’s supplies, everything’s gone up in price.
Speaker 1 (04:24):
And even if you’re getting as much work as you want, it can still be a huge cash crunch and construction and, and specialty contractors have a huge issue with this in the construction industry. You wanna move to the next slide? Another big challenge is being able to kind of hire top tier employees retain employees is wages of going up. You constantly have to make sure you’re, you’re paying people what they’re worth or they’re moving on. It can be hard to keep good people. If they’re, if you do lose people, it can be really hard to replace them. There’s a labor shortage and, and almost everyone in construction feels this. So this is a, is a huge challenge and, and really the only way to solve this challenge is by having enough cash. So you need to make sure that you’re, you’re paying people kind of the market rate or, or else.
Speaker 1 (05:16):
That’s another issue that just comes back to cash and you’re not gonna be able to, to move forward effectively in the construction industry. Then moving on to our, one of our last challenges in stress about getting paid and paying vendors. So a lot of you probably experienced this before. Not knowing when you’re getting paid, not knowing when that payout’s gonna gonna come through. It can be a big challenge. It can weaken relationships with vendors. You don’t know exactly which bill you need to pay this month, which bill you need to put off. How big of how many new projects you can take on all of those, all of those stresses around come back to cash and, and payments. And so that’s what we’re gonna talk a little bit more about today. You wanna go to the next slide? We’ll talk about some of the solutions that, that you might be aware of. Some of them I’m sure you’ve used before. So first is a bank line of credit. If you can go in the chat, how many of you have you tell us if you have a bank line of credit that you get funding from for your business?
Speaker 1 (06:29):
Excellent. So yeah, bank lines of credit are a great way to get operating capital, get it at competitive rates. Good. Emily has, has a bank line of credit. They can be, I’m sure Emily test this. They can be difficult to obtain. You have to, to supply a lot of financial statements, years of documentation. It can be very tough for new businesses, especially in construction to get a bank line of credit. And, and even if you have it it might not cover all of your work capital needs and you don’t wanna max out that bank line of credit. It can be bad for your credit score of your business. It can put you in a place where something does come up unexpected. You don’t have that line of credit to rely on. So it’s a great solution and definitely something to look into.
Speaker 1 (07:16):
But also has some, some challenges, especially in construction for really providing all of the funding you need to run your business. Do you wanna move on to the next slide? Another, another thing that I’m sure a lot of you have is credit cards. They’re easy to use obviously just go to go to home Depot, go to a number of suppliers, fly your credit card make payments. You get 30 days, no interest, which is great. But you have credit cards, all obviously have limits, so you can’t pay for everything with them. It can be difficult to run your entire business off credit cards and you’re not able to pay that balance every month that interest starts to add up. And then if you do have had any challenges in your past and you have a low credit score, those can be penalized significantly on credit cards, whether it’s the rates you’re getting or the amount of, of credit that you’re able to obtain.
Speaker 1 (08:09):
So Doy, if you wanna move to the next slide, another solution for, for funding, payday title loans oh, this is kind of a, a, a method of last resort. It’s can be easy to get financing this way. And we hear from customers every day that have used payday title loans to fund their business, take on a big project, buy materials when they’re, they’re getting slow, paid on a job. But it comes with a huge cost. It has extremely high rates. There’s a risk of you’re doing a title loan of, of that asset being Reposessed. And it’s something that, that we try to help customers avoid doing this is, can be a, a predatory type of financing and something that if you have to get through your business, it’s something that makes sense. But I think we have better solutions here at level set.
Speaker 1 (08:58):
Next slide is factoring. So you can get quick access to funding this way, but you really lose control of the relationship with your customer. So you, you don’t own kind of getting paid from your customer anymore customer anymore. That factoring company does. You can get tied into contracts of length of time that that factoring company is going to be collecting all of your receivables. So it could be a huge challenge in the business and, and something that, that really can, can cause issues and create challenges with your, with your customers. Again, any, any questions on these types of, of financing solutions here? There’re just kind of just overviews, but we can obviously go the more depth if anyone does have questions.
Speaker 1 (09:50):
Okay. Dusty, if you wanna go to the next slide, talk a little bit about materials, funding solutions. This is something that level set offers and it’s providing financing specifically around materials and it empowers companies to take on new jobs. You can take on bigger jobs that you might not have the capital to start right away. It’s great for new businesses because they can, that can’t get funding from, from bank lines of credit. Like Emily has and really need, need some more working capital to continue to grow their business and take their business to where they want it to go. Really the only downside of, of materials financing is you can really only apply the, this type of financing to materials that will be permanently installed on the job site. So in the next slide, do, we’re gonna dive into a few more details on exactly how materials financing works from level set.
Speaker 1 (10:48):
So we, we work with, with contractors and actually purchase materials from a supplier. So any supplier that, that you might work with that you have an established relationship with will buy the materials from them. And we’ll give you up to 120 day payment terms. So you’ll get those you’ll, we’ll buy the materials. We do have a, a small origination and financing fee that you’ll pay, but you get up to 120 days to pay those back. And the other good thing is the qualification is based on the project. So we’re not just looking at your business. We’re, we’re looking at the general contractor. You might be working for the property owner you’re working for. We look at their payment history. So level set has all this data on contractors general contractors that have that their payment history. If they pay on time, if they get a lot of liens filed against them, we look at that data and, and use that to help underwrite this financing.
Speaker 1 (11:47):
So even if you’re a new business and don’t have a lot of credit history, this can be a really good option because we’re, we’re not just at you, but the entire project as a whole. And then we do have it. The turnaround time is really quick. It’s not like applying for a line of credit from a bank. We have typically 48 hour approval. It doesn’t, we don’t require a lot of information, just the, the, the contract that you have with the general contractor, you’re working with a information and a quote from your supplier. And then we can really go ahead and get started. We don’t need years of, of financial history or bank statements. Again, the only con is these do have to be materials of are permanently installed on your job site. But again, if you’re able to finance your materials that can re help release cash that you can use to for your other expenses like payroll and overhead, any questions on our offer here before we move on our last, our story here.
Speaker 1 (12:51):
Okay. I wanna talk a little bit about Alberto Polanco. He’s the president and CEO of Polanco business solutions, and he’s one of, one of our first materials financing customers and has been using us for, for almost a year on, on his projects. And he, when he started about three, his business, about three years ago, they were, they’re doing a hundred thousand dollars in revenue. And now they’re up to 3.5 million in sales, and he really credits materials financing with being able to see that kind of growth. They’re a millwork company. So they have a lot of expenses around materials, raw materials. Would they turn into a lot of nice custom cabinetry and then install it in a job site, but they’re having to buy these materials up front, fabricate them in their own facilities. And then wait till the project’s at a place where they can actually go and install ’em in the building before getting fully paid for the project. So he, a lot of, a lot of capital needs to be outlaid in these materials and they couldn’t get funding from anywhere else and couldn’t couldn’t really get any growth. And, and that was a huge, huge challenge for them. And was definitely definit. He credits materials financing was being able to get that, that growth.
Speaker 1 (14:14):
Excellent that we see with say, look, we have, concrete’s very expensive. Yes. Materials are expensive right now. And construction, remodeling. Yeah. Materials, materials prices is a huge issue. And again, another reason why financing is especially important right now as those costs have continued to rise. If you wanna go ahead and go to the next slide here, we have a quote from Vivian bell. She’s an accountant at mesh. And again, they, they were seeing these same, same issues as Polanco having expensive materials upfront, not getting paid for 90 days, 120 days after Jo a job. And she said, level set is a great option for materials financing. You need more time between purchasing materials and receiving payments. And, and I think that’s really true. We, we can help bridge bridge those challenging situations times that might be slow in your business and help help businesses get capital, get back on their feet and really get, get those projects that they’re capable of performing, but might not have had the cash to take on.
Speaker 1 (15:27):
And so with that, I think, I think we’re at the point for questions, is there any questions that, that people had, I can answer any questions about materials financing if you are interested, definitely let us know. We can, we can provide you information on, on how to get started. And, and again, a nice thing about materials financing is it’s, it’s a project by project basis, so it’s not something you have to use on every project. You can pick and choose the project that we’re getting started on. The one are the fees and interest rates on this financing. Yeah, that’s a good question. So the way that the financing works is there’s typically a 2% origination fee. The point of a project’s when a project is started. So say you’re buying $10,000 of materials is a $200 fee upfront. And then we have a 3% monthly financing fee and that’s charged weekly.
Speaker 1 (16:25):
So in that in that example where we’ve are financing $10,000 of materials, you’d see a 75% weekly financing charge. And then that would essentially continue for 120 days or up until the point that you paid off the balance of that, those materials payments. So depending on if you pay on day 30 day 90, there’s no pre prepayment penalties, you can pay any time. And those, all those fees stop. Okay. Another question, do you submit as proposal, the materials you’ll need, and it gets approved that way question from Tara. Yeah. So the way it works, Tara is the three things you really need. We have an online application that really just collects a little bit Infor of information about your business, and then we need a contract that you would have for your project that shows your, whether you’re general contract or a subcontract, or working for a general contractor that contract that you have with your business with, with, with your hiring party.
Speaker 1 (17:28):
And then we need a quote for the materials. So those are the two things that we need to get started. And then we’ll, we have a, an underwriting team here and they really look at, like I said earlier, the project as a whole. So they’ll, they’ll look at your business, but they’ll also look at who you’re working for. And if they have a good of paying their subcontractors or contractors, and then we’ll make a decision on, on financing. But I mean, we see, we see pretty high approval rates generally. And, and so if you have a project that you’re interested in and wanna try this out on definitely go ahead and submit it. Doesn’t take too much time or effort and we can get a decision pretty quickly. Hey, Emily asks very new to this. When I get paid, you get paid agreement normal between the company and customer.
Speaker 1 (18:18):
I would say it’s fairly normal. Yes. Like our terms are a hundred up to 120 day payment terms are pay when paid. So, I mean, the way, the way this really works is, I mean, we’re trying to help you bridge that gap between purchasing material. You need to buy all these materials up front for a project. And we know you’re not getting paid sometimes for 30 days, 60 days, 90 days, even longer. And so once you’re paid for that work, then hopefully you have that cash from that payment to be able to pay us back. And that’s typically, well, that’s the terms a lot of suppliers give. And that’s what we, we ask for here. As a material supplier, do we have to wait for the contractor to install before we get paid? If you’re a material supplier, the great thing about this is you actually get paid on day one, so you don’t have to wait for the install.
Speaker 1 (19:12):
If we level set will pay the material suppliers, as, as soon as that invoice comes over to us and the project is approved and ready to go. So we’ll pay material suppliers in cash on day one. Sometimes that helps contractors get cash discounts from suppliers sometimes, sometimes not, but you definitely don’t have to wait for the installs of supplier for this. Daniel asked again, what are your fees again, went over it earlier, but just real quick, it’s a 2% origination fee and then a 3% monthly financing fee. So there’s more information on our website too, where we have information about our fees. And if you have a specific project too all of our account managers will help walk you through exactly what those fees are. Another question, do you accept projects that are not yet contracted, but there is a notice to proceed?
Speaker 1 (20:07):
I don’t know if I know the answer to that question. We can definitely talk about it if there’s a, if you know who the hiring party is, I don’t, I don’t know if we’d actually move forward with the financing until we saw an actual project, but I’d have to check with someone on our credit team to be sure on the answer to that question. Question I missed is the fee weekly. The fee is weekly. We quote the fee in a, it’s just easier to understand it as a monthly on a monthly basis, but technically the fee is 0.7% per week. So you would see a 0.7% fee on a weekly basis, Emily and says, we pay up front. Now for that discount. Is this financing feature inclusive with handling lean waivers? Good question, Emily. So level set does offer lean waivers.
Speaker 1 (21:01):
As, as by, after we purchase the materials, we actually become the supplier on the project. So we do, we will send all required notices, leans lean waivers if ne or lean waivers and leans if, if necessary, that comes to that as the supplier that doesn’t necessarily protect you as a contractor. So we definitely recommend you doing hand sending those on your own, and that’s definitely something that level set can help you with. And if you’re interested in both materials financing and lean waiver management, that’s something that our team can definitely work with you on and definitely provide some, some discounts for both using both of those services.
Speaker 1 (21:50):
Did I answer, I hope I answered everyone’s questions. Thank you for all these great questions that are coming in. We love being able to help provide, provide these answers. Is there any, is there any questions that people didn’t quite understand? I didn’t answer effectively or if, or that we didn’t or anything else that’s come up that we might be able to address? Okay. Thank you all for, for, for asking these great questions. Let me see. I’m just go back and see who asked the question about ask the question about the notice to proceed.
Speaker 1 (22:36):
Okay, Marie. Okay, perfect. Great. Laia has got it. We’ll go ahead and follow up with our credit team and make sure we get those answers, but thank you everyone for joining us today. We really appreciate your time. Thank you. Have if you are interested in, in applying for materials financing you can scan that QR code on the screen. You can go to level set.com and, and apply for materials financing. So we can go help, go ahead and help. Help you get taken care of someone on our sales team will be in touch with DPR interested, and we hope you got a lot out of got useful information out of this presentation. And I hope everyone has a great.