Financing for Property Preservation Companies

The property preservation industry has grown at an unprecedented rate in recent years. This growth is a direct result of the real estate bubble that burst in 2008. Banks ended up repossessing a number of homes and becoming, in effect, property owners.

The problem is that a number of these properties were returned in a state of major disrepair and needed to be fixed to be marketable. And once the property was fixed, constant upkeep was needed to maintain the property. Since banks don’t have the resources to perform this work, they hired third-party property preservation companies.

The Opportunity

This scenario created a major opportunity for individuals who had the expertise to repair homes and the drive to start a business. Small companies that did things the right way stood to profit handsomely from this opportunity. Many people who had construction experience – and who were unemployed due to the recession – started property preservation companies.

Unlike other types of businesses, property preservation firms can be started with little money. However, they need a constant influx of working capital to operate. You need to pay vendors, employees, and other expenses.

Many firms ran into problems at this point.

Cash Flow Problems are Common

Most property preservation firms encountered problems for two reasons. First, most corporate clients insisted on paying their invoices using standard net 30- to net 45-day commercial terms. Second, many clients were actually not creditworthy to begin with, which resulted in slow payments and bad debt. The combination of these problems has been a major source of financial difficulties for preservation firms.

Obviously, these problems could be solved by evaluating commercial creditworthiness and by using financing. However, most banks and lending institutions are not comfortable financing property preservation firms. Fortunately, a couple of alternatives can fix this.

SBA Microloan Alternatives

Most preservation firms that I have evaluated have not needed large sums of money. Most required $10,000 to $50,000 in financing, which is small by financing standards. This level of financing makes them ideal candidates for the SBA’s microloan program. This often-ignored program is available to small business owners and has easier qualification criteria than conventional business loans. The program offers up to $50,000 in financing, though this amount varies by state.

One attractive feature of the program is that providers also offer business mentoring, sometimes as a requirement of getting funded. This guidance can be a great resource for individuals who don’t have a lot of business experience. These loans are provided by intermediaries, rather than by the SBA directly. The most well-known provider is Accion.

Invoice Financing

A small business loan may not be the best solution for every situation. If your greatest cash flow challenge is that your customers are taking up to 60 days to pay, you may be better off using factoring financing. This tool finances your open invoices from creditworthy customers and gives you an advance on them. Instead of waiting to get paid, you get immediate funds from the factoring company – who then waits for your customer to pay. This advance improves your cash flow and enables you to take on new clients without worrying about slow payments.

One advantage of this type of funding is that it’s based on the creditworthiness of the invoice that is being financed – not the creditworthiness of your company. So if you work with solid clients – such as SafeguardCyprexx and Five Brothers – you stand a good chance of getting funded.

There is one caveat: this solution can be used only if your invoices are not encumbered by liens or if your company does not have tax or legal problems. You can learn more about factoring by reading this article.