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Bank funded remodel...HELP!!!!

4350 Views 32 Replies 17 Participants Last post by  LCG
Hey Guys, started on my own as a general contractor doing high end remodels about 3 years ago. I just took my first job in which the client is not paying out of his pocket but financing it through his lender (job is a $250,000 remodel and addition). Here's the situation:

I always ask for at least a 15-20 percent deposit because i am not big enough yet to get 50-75kk worth of credit with my vendors. Never had an issue. Today my client called and said bank will not give any money up front for deposits and will only draw at the end of every month (so i have to front the initial material and labor) also, job should only take about 2 months. THEY ALSO WANT ALL PO'S AND RECIEPTS. I feel like I am divulging all of my company info along with profit which is 15 percent. I feel the bank and client should only need my invoices for work and materials. How do i handle this?:censored:
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Banks dont put money out front, its your responsibility as the GC to have the capital to hit your milestones. Get a line of credit at your bank.

I have never provided a bank with anything but a bid and scope of work and generic cost estimate. Never receipts except on allowances.
Also, thanks for any and all of your advice
Thanks Jaws!! I don't have enough time or credibility at my bank to get a 30-50k line of credit. They're asking for me to get a secured line which means me putting money down as collateral.

I knew banks didn't ask for P.O's or receipts!!!! I think the client is just trying to keep me honest or see if he can get better pricing elsewhere. He and the bank will just have to deal with my invoices.

Any other advice you can throw my way?
Do you have any property or work trucks and equipment you can put up as collateral?

Im not real experienced dealing with bank loans for clients, almost exclusively out of pocket clientele, thankfully.
sure don't. I am trying to stay as liquid as possible these first few years. Plus, i heard putting collateral down to fund client projects is very risky, especially in residential. I hope there is a way around this as it is a pretty large project.
A backer would be the only other way I know of, never done it. Probably be hard on short notice to find someone.

Good luck.
sure don't. I am trying to stay as liquid as possible these first few years. Plus, i heard putting collateral down to fund client projects is very risky, especially in residential. I hope there is a way around this as it is a pretty large project.
$250k addition in 8 weeks is ambitious even with the cash. Good luck!
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Here in Canada draws are at specific milestones, Foundation, roof tight, ready for board, and signifigant completion. The bank should need nothing more than a Quote/Contract from you.
Thanks ohiohomedoctor, I know it's quite ambitious but I have awesome teams! I also have done several of these fast track builds, the most recent was a 2nd story 1000 Sqft addition completed in 3 weeks and 4 days. Got a lot of referrals after that one from the happy client. I love these challenges but hate the hoops we have to jump through to do what we do best! Do you have any advice as to how to deal with banks? Thanks.
Remember: He who has the gold makes the rules...The Bank.

I have never heard of a bank fronting money. No matter what system is set up, draw, milestone or billing you will ALWAYS be behind the eightball with them.

Also never heard of a bank only paying at the end of the month. No matter what the system 2-5 days wait for a check.

Sounds like you will need some private money. Likely going to be expensive.

250k addition in 2 months does sound rather ambitious, especially for a guy with no cash.

Good Luck.
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To be honest the largest addition I did was 160k for the simple fact that I don't have the working Capital to do jobs larger then that. We make our money by doing a lot of small jobs ( kitchens, baths etc) rather then a few large ones. It just works better for us. But I still get money up front from the homeowner. If they don't at least have some start up money then I think I would take a step back. Especially since you have little working capital to recover with if this goes bad. Maybe the bank is being so particular since you have no financial backing. I'm not trying to be rude in anyway but it sounds like this job may be to large for your company (financially). But then again, no one ever got rich without taking risks. Good luck.
dv1041 said:
Hey Guys, started on my own as a general contractor doing high end remodels about 3 years ago. I just took my first job in which the client is not paying out of his pocket but financing it through his lender (job is a $250,000 remodel and addition). Here's the situation: I always ask for at least a 15-20 percent deposit because i am not big enough yet to get 50-75kk worth of credit with my vendors. Never had an issue. Today my client called and said bank will not give any money up front for deposits and will only draw at the end of every month (so i have to front the initial material and labor) also, job should only take about 2 months. THEY ALSO WANT ALL PO'S AND RECIEPTS. I feel like I am divulging all of my company info along with profit which is 15 percent. I feel the bank and client should only need my invoices for work and materials. How do i handle this?:censored:
I don't deal with third party payments.

Contract signed with owner directly. 50 % down @ signing, balance on completion. Intermittent scheduled payment if job extends over 2 weeks. Customer is responsible for fronting all the money. I'm not your bank.

Don't like it that way? Then we don't do business.

Does it knock me out of some jobs? Sure.

Do I sleep well at night and have my bills paid? Absolutely.....
I understand this for smaller jobs but this is 250k. Have you ever had someone give you 125k up front?
svronthmve said:
I don't deal with third party payments. Contract signed with owner directly. 50 % down @ signing, balance on completion. Intermittent scheduled payment if job extends over 2 weeks. Customer is responsible for fronting all the money. I'm not your bank. Don't like it that way? Then we don't do business. Does it knock me out of some jobs? Sure. Do I sleep well at night and have my bills paid? Absolutely.....
Would be pretty sweet though right? That's when the contractor disappears and you hear the home owner crying they gave them half down haha
mk5065 said:
I understand this for smaller jobs but this is 250k. Have you ever had someone give you 125k up front?
Yup, definitely only asking for initial 15 percent which comes out to 37k. i think we've got it all figured out (knock on wood). Thanks to all that chimed in. this place is definitely stocked full of experience.
Which is why I wouldn't be bidding that size job. Don't need the headaches...:no:

Just out of curiosity, what percentage do you expect to make in profit after ALL expenses are factored in?
I understand this for smaller jobs but this is 250k. Have you ever had someone give you 125k up front?
I did about a $500k remodel once on a variation of a cost plus contract. Actually a handshake. There was a spec sheet and plans, but nobody signed anything. Owner gave me $50k to start plus a separate check with my percentage. The second draw came up less than two weeks later and so he gave me a check for $150k, plus another check for my percentage.

When he was paying me I said you're either the dumbest or the most trusting guy I've ever met. (Cause he was paying me up front, for work not done yet)
He just looks at me with a funny grin and said "we can find ya", as he handed me the check.

Best customer I ever worked for and he still calls me for any work on his houses. I admit that that's the only job I ever did that way though....
mk5065 said:
I understand this for smaller jobs but this is 250k. Have you ever had someone give you 125k up front?
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i have a little under 50k in net profit with an additional 3 percent contingency for things to go astray.
Which is why I wouldn't be bidding that size job. Don't need the headaches...:no:

Just out of curiosity, what percentage do you expect to make in profit after ALL expenses are factored in?
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