If you have a signed contract for a large order, but don’t have the finance to purchase the supplies or finance for the resources to complete the work, then contract finance is a good option.
You can also consider this option if you are tendering for a large contract. In this case, you would approach the contract financier and if they agree to finance you, should you win the tender, they will issue you with a letter of intent that you can include in your tender submission.
Contract financing can give you the money to expand your business beyond its normal operating capacity so that you can fulfil the sales contract.
The type of contract finance you receive can vary widely and will also depend on the urgency of the finance. If you needed the finance “yesterday” then your options for finance may be more limited. In some cases, you may need an investor for your business, or you could look at sharing the contract with another business.
The options to raise contract finance are very similar to those for working capital. The amount of finance required will play a large role in deciding which option best suits your business.
This article first appeared on Finfind.co.za, it is republished here with permission.