Anyone Hear Of GCs Financing Projects Themselves?

J-Peffer

A local guy I in the area finances his jobs, when he does a bid, it's right in the proposal $***X per month with $***X down.

I don't think it's a cash operation, but I think he is probably using his line of credit with a bank?

I've been debating doing this myself as I feel you could charge more and get a more steady cash flow.

I would have to set it up with my lawyer. But was wondering if anyone else has done this or knows anything about it? Could you still lien the property if they miss payments?

Thanks!

Scott Meyer

Certainly this is possible. I'm not an expert in this area, but the guys in the office put our heads together and thought of these pointers.

First, contractors have a tendency to charge less for stuff they do themselves. i.e. the interest on the financing. If a contractor is using their own line of credit, then they have an additional interest expense. This expense plus more (administrative) should be added in to the bid. If you aren't going to raise your bid/quote prices, then it probably isn't a profitable option for you.

Second, its additonal risk. Yes, you can still place liens on the property. That really shouldn't be affected by who finances the project. However, you are taking on additional risk by being that financer. If the project owner is strapped on cash, I can see payments ending sooner than if the project owner had a line of credit just for this project. Just like the above paragraph, risk should have some reward. If you can't work this in to the bid price, then it pobably isn't a profitable option for you.

If you do choose to go down this route, we think you should compare jobs without financing and with financing by your company. In negotiations if one side of the table is fulfilling multiple roles (you as the GC), the other side (project owner) tends to view a fair price that does not incorporate a fair profit for teh individual roles (GC and Financer). The comparison will ensure you aren't being pushed around.

As always, check with the lawyer and make sure things are in order legally.

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Patrick

Its illegal in some states for a contractor to finance for a homeowner without using a third party. Its ok to offer it from someone else, but it cant be your money

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Originally Posted by Celtic
Like I said...I'm sure you are very good at what you do ~ whatever that is and where ever it happens.

Cole

I would never do it for a job over $10k.

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mdshunk

A friend of mine has a window company, and has the monthly payment thing in his pitch too. It has the "look and feel" of him financing it himself, but when you get down to signing, he's going to whip out a credit application for one of the local finance companies. If the people are not credit worthy, and he wants to sell them a job anyhow, he takes the payments himself. When they make 8 consecutive on-time payments, he has a finance company of last resort that will then buy the contract from him.

pcplumber

We finance jobs, up to about $10,000, and would not give any more credit, to one customer. Our costs, to do the work, and furnish materials, is nothing, compared to construction.

For construction, your non-payers could be 10% to 15%, because many customers get legitimate and serious illnesses, they die, lose their jobs, get divorced, and some just decide they don't feel like paying. Many customers weasel out of paying by filing a fraudulent bankruptcy. Customers will transfer their assets, to someone else, and may be allowed to keep some assets, or they Homestead their home, and you can't get a judgment against it.

When the bank has the first note on the house, another bank has a second, and you have the third, their will be no money left for you.

J-Peffer

Intresting points guys, and thanks for the input.

I'd probably just do it on smaller roofs to test the waters.

First: I would charge more for the work being done. I think you could too easy. Many people bought homes and cars based on the "Payment" not on the price.

Second: I think a finance charge would be in order. A % of the estimate with a minumum of say $500 or so.

Third: Intrest would obviously apply. Compound at a monthy rate but keep the rate low, so it appears to be a good deal?

Fourth: Would need 25% to 33% down to start the contract. This would cover most of the material cost.