Greensill offered reverse factoring to many tier 1 contractors such as CIMIC (CPB and Leightons).
As insolvency advice firm McGrathNicol chairman Jason Preston explained to The Australian:
“ As a second tier contractor, you’re going to the reverse factor financier and saying ‘here is an invoice I’m owed from a higher creditworthy entity and they are going to pay in 60 days.’ And the financier will look at that and say ‘I’m going to effectively buy that from you and I’ll give you 95c in the dollar against it’, and that’s how you get funded.”
The article explains:
‘ when a provider like Greensill fails, the funding dries up. The problem is that if the supplier turns to another financier for funding, the credit is no longer the high credit of the big client invoiced in the first place’
What Are the Funding Alternatives for Contractors?
Some companies will be able to turn to debtor financing to factor their invoices, however contractors often don’t fit the mould for factoring, as they are paid in progress payments.
With debtor out of the question, and traditional overdraft facilities often failing to meet the funding gap, there are limited other solutions for these companies.
Leveraging Equity in Plant & Equipment
Many contractors finance their equipment using equipment loans, or cash, thereby slowly building equity into their fleet over the years as the debt is paid down.
This equity is typically not apportioned value by their bank, however with used equipment in high demand, contractors may be surprised at how much value they have in their fleet.
MKP Finance has built a product which allows contractors to unlock that equity, called MKP Equipment Line, which may be able to assist those contractors who have built equity in their construction and transport fleets.
Leveraging Equity in Property
For those who do not have equity in their equipment, business owners may be able to unlock equity in their residential or commercial properties to fund their business.
Whilst typically business owners work over time to separate their business assets from their personal assets, this option may be a lifeline to a contractor who has a sound growth trajectory, but needs to fund a working capital gap.
Borrow For the Right Reasons
Whether it is MKP Equipment Line, a property line of credit, or some other lending product, contractors must make sure to be borrowing for the right reasons.
As Mr. Preston says elsewhere in the article, “borrowing more money to keep funding losses doesn’t really get you anywhere.”
Contact MKP on 1300 000 657 or email: email@example.com about your funding requirements
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