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Funding Success: Smart Finance Strategies for Contractors
69 Plays1 month ago
Welcome back to another episode of The Better Contractor. In this episode, Brent is joined by Jonathan Fodera from Integrated Business Financing to expose the biggest financial mistakes contractors make—and how to avoid them. From project financing and invoice factoring to the golden handcuffs of banking, he shares powerful strategies to keep your cash flow strong and your business growing. Learn why financing is smarter than paying cash, why you should never lease equipment, and how business credit can unlock new opportunities. Plus, simple steps you can take today to improve your financing options. Don't miss this episode!
#Contractors #BusinessFinancing #CashFlow #EquipmentFinancing #ProjectFinancing #InvoiceFactoring #BusinessCredit #SmallBusinessGrowth #FinancialFreedom #ContractingBusiness #TradeFinance #TheBetterContractor #BusinessFinance #TheBetterContractor #IntegratedBusinessFinancing
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Transcript
Introduction to Jonathan and His Approach
00:00:00
Speaker
Welcome back to another edition of the Better Contractor. Today I joined by Jonathan with Integrated Business Financing. Jonathan is someone we use internally at Lanarkorp. He's passionate.
00:00:11
Speaker
straightforward.
00:00:14
Speaker
welcome back to another edit of the better contractor today i am joined by jonathan with integrated business financing and jonathan is someone we use internally at lannercop um he's passionate he straightforward He will cut right through the chase and get you what you need. So what I've liked about Jonathan is he's kind of an outside-the-box thinker. the whatever kind of weird fin He's got financing for stuff that I didn't know you could even do. So I've enjoyed getting to know Jonathan over the years, and absolute pleasure to have him on the podcast today. So, Jonathan, welcome.
00:00:47
Speaker
Thank you, Brent. it's ah It's a pleasure and honor to
Jonathan's Background and Career Journey
00:00:50
Speaker
be here. I'm very happy that you asked me. And I love working with you, man. And I got to tell you you know you, you hit the ball in the head.
00:00:58
Speaker
I'm a little too blunt sometimes for my own good, but it does... work very well for people that are in the contracting space. most I spoke to a doctor today and it was almost game over because he didn't like that. I was just right to the point, right to chase. Hey, this is what we got to do.
00:01:14
Speaker
So to me, it's your is's very effective and it gets stuff done faster. So yeah exactly. now So tell me a little bit about yourself, your background, kind of what got you into the space you're doing.
00:01:24
Speaker
Yeah, of course. So ah I was raised by a single mom, right? ah She was the breadwinner in the household. She worked on Wall Street. My whole family worked on Wall Street. My dad visited on the weekends, i played hockey at a high level. I lost my mom at an early age. Right.
00:01:41
Speaker
At about that time, I lost my mom. I started to get into finance and technology and I was helping some firms build their companies. and And at an early age, I had to be, you know, when when I lost my mom, I had to take over the family finances and i was and it wasn't just her, it was her and her two sisters and their kids.
00:02:04
Speaker
And so I learned a lot about managing money and being responsible at a much earlier age than most people should need to. And ah basically when I was working at these firms, I realized that none of them, absolutely none of them had it all figured out because they only had one program or product.
00:02:23
Speaker
And a lot of times it didn't fit what the client needed. So I got annoyed like all of us do working for other people. And I said, you know what? I can build this much better. So I instinctively thought, hey, if I was a business owner, if I was an entrepreneur, what would I want?
00:02:39
Speaker
And it would be one place where I could go and get all my needs met when it comes to money, finances, credit. So I built it. And I went through ah couple bad partnerships.
Rebranding and Supporting Businesses
00:02:53
Speaker
ah and that was just a learning process for me. Wound up 2014 with a partner in Sprout Lending. We built that company pre pretty large, and I decided, hey, I had enough. I'm going to go rebrand. I gave everybody an opportunity. said, look, me and ah my partner are splitting. where You guys can stay here, or you can come with me.
00:03:18
Speaker
Absolutely everybody to a T came with me. And we rebranded it to integrate in probably 2020. And since then, i haven't looked back. I enjoy life way more, ah even though it could be considered a little bit more stressful. And all I want to do is help businesses grow, because when you help a business owner, you're not just helping them, right? You help their family. You help all the employees, the employees' families, and the community they serve. So that's always been...
00:03:45
Speaker
my mission and goal. And it's what I enjoy doing. So that's me in
Cashflow Challenges and Solutions for Contractors
00:03:51
Speaker
a nutshell. Yeah, no, I can definitely see the passion just, you know, us talking through the years and and watching you, like I said, it's very outside the box, which is what I like. And it's again, it's stuff that I didn't know existed until I met you, which is what's cool.
00:04:03
Speaker
Well, Hey, kind of my first question. um So again, contractor based, not all contractors, but a lot of them have cashflow issues for multiple reasons. One,
00:04:14
Speaker
the very equipment heavy industry. lot of these people grow quickly. And then also a lot of them are seasonal depending on what part of the country you're in. You may be working your butt off from March to November.
00:04:25
Speaker
Holiday season may be slow, whatever that looks like, depending what kind of contracting you do. So I kind of want to just get your thought on like cashflow solutions you have, recommendations you have, any pointers you have when it comes to that.
00:04:37
Speaker
Absolutely. So let's start from the top. We'll go first on the equipment heavy contractors. I see a lot of contractors still buying their equipment in cash or financing things in their personal name.
00:04:51
Speaker
The best thing you could ever do is link up with someone that actually knows how to finance equipment and then speak to your accountant. And what I typically recommend is doing a lease with a dollar buyout or a fair market value buyout.
00:05:05
Speaker
And the reason I say that is because when you do that, what you're doing is you are actually giving yourself the ability to write off the entirety of the payment. which lowers your tax liability.
00:05:16
Speaker
It also helps you build business credit. It also builds your comparable debt. And these are all things that a business owner, especially somebody that is a contractor needs.
00:05:28
Speaker
When you're talking about cashflow, every single business should have a line of credit and they should have a line of credit for three reasons, opportunities, emergencies, and everyday things.
00:05:39
Speaker
And the everyday things, when you think about a line of credit, lines of credit really run six to 36 months. And when you have a line of credit, you shouldn't you should only use it for things that you need on a daily, weekly, or monthly basis. And what I mean by that is you put it towards inventory, supplies, adding people to your team, marketing, things that you do repeat repetitively.
00:06:04
Speaker
And then after you use it, you pay it off to keep the cost of capital down. And you mentioned something like shoulder season for contractors, right? The summer is great. And then winter comes and you don't know which way is up.
00:06:18
Speaker
Well, those contractors, timing is everything. my My grandfather used to tell me timing in life is everything. So if you are somebody that doesn't have a line of credit and you are a contract and you are seasonal, think about applying for a line of credit.
00:06:33
Speaker
at the peak of your season. And I say that because the best time to apply for a line of credit is when you don't need it. And that's because you're gonna score out higher. your Your cash flow is better, your credit's better, everything looks better.
00:06:46
Speaker
Whereas that contractor that waits until let's say November when he's starting to slow down or he's slow, he's not gonna get approved for the same terms, right? So that's that's a big key to this.
00:06:58
Speaker
It's knowing when and where to go for what. and how to use each program to build your business. I built a program called Capital Tools, 97 bucks. I'll send you the link to put in this show. It goes through all the different types of programs, how to use them, why to use them, when to use them.
00:07:15
Speaker
The other thing for cashflow, and no one no one knows about this program, most banks don't even know about it because they don't carry it, is if you are B2B or B2G, meaning business to business or business to government,
00:07:30
Speaker
you can do something called invoice factoring. And invoice factoring allows you to stop waiting to get paid. And that's the biggest problem I see with a lot of contractors is because they're waiting to get paid, so they're growing and they're constantly laying out money.
00:07:46
Speaker
Well, when you set up invoice factoring, typically someone you submit your invoice and you get the 80%, 70%, in 24 to 48 hours,
00:07:54
Speaker
you know in twenty four to forty eight hours And that solves the actual cash flow issue where a line of credit really wouldn't. Okay. And that's a program that no one knows about.
00:08:05
Speaker
And what I see is like when people use that program and use the right way, one, they never leave it. Okay. Because it fundamentally changes their business. And two, they no longer have cash flow issues and they don't have to go out and borrow money all the time. So it's a great program.
00:08:20
Speaker
And the last program I'll tell you about, is called project financing. And project financing is when you have larger projects that are coming up that are outside of your piggy bank.
00:08:34
Speaker
great Like if if someone is used to doing million dollar jobs and then all of a sudden a 10 million dollar job lands in his lap, there's no way he can cash flow that. Well, project financing allows you to draw up up to 20% of the contract value ahead of time.
00:08:51
Speaker
And they only charge you for what you drew and how long it's out. So that is another great program that nobody knows about that can help contractors or people that are B2B and B2G.
00:09:04
Speaker
That's awesome. On the invoice factoring too, um that's one of those, cri if I'm wrong, but like, let's say we have 30 different invoices, 10 of those are 2%, 10 day or whatever.
00:09:16
Speaker
i can pick and choose what I send to be factored. Yeah. so that's beautiful for the guys that are, 30, 45, 60, even more than that. Correct. I do want to say not every, ah not every factoring company is the same.
00:09:28
Speaker
and So there are companies that mandate that you have, you know, you, you factor everything. There's some that will make you factor a certain percentage.
00:09:39
Speaker
When I work with clients, I try to get them the most favorable terms because I don't want anyone to get locked into anything. Also, If the program is really that good and the factor is really that good, you're going to want to factor everything anyway, because it's speeding up your cash flow and it's helping your business grow.
00:09:55
Speaker
So I try to make it as favorable as possible ah for clients. Okay.
Understanding Financing and Underwriting Criteria
00:10:02
Speaker
but Along this same vein, ah you're talking about, you know, banks and credit.
00:10:07
Speaker
What does underwriting look at primarily to make their decisions based on, you know, go ahead. No, that's a great question. I love it. um Depends on the program, right? So SBA, they're going to be looking at credit, time in business, and your profit margins 95% of the time to see how much debt you can service, right? ah lines are the The vast majority of programs are going to look at time in business, credit, when I say credit, both business and personal,
00:10:37
Speaker
Cash flow, when I speak about cash flow, what I'm really saying is how much is going in the bank, how consistently is it going in the bank, how many deposits are in the bank, how much cash you're keeping in the bank, and are there any types of negative days or low ending daily balances or low balances at the end of the month.
00:10:57
Speaker
Those things all factor in. And then, of course, profitability. Okay, those are the four things. the only program that's ah The only two programs that differ from that, I'll actually go, the three programs that differ from that are invoice factoring, project financing, and PO financing.
00:11:18
Speaker
invoice for now yeah Invoice factoring actually looks at your clients. And so one of the hidden benefits that people really don't talk about and no one knows is that if you are about to bring on new clients and you you want to be able to credit check them, well factoring does that for you. So if if you have factoring set up and they say, hey, this guy really is only approved for $5,000 and you're about to take on a $500,000 job, well, guess what? You could be walking into the meat grinder.
00:11:47
Speaker
Right. So that is a hidden benefit of one of those programs. But for the most part, they all rely on those four key things, which is why that is what we go over on any strategy session.
00:12:00
Speaker
I want to see credit. I analyze the cash flow using the same software as the banks use. I look at profitability on the tax returns and financials.
00:12:12
Speaker
And then same thing, time in business is pretty standard. you know And the way time in business works, under a year, very high risk. Two years are under, less risky, but still has some risk. Once you've been in business two years, you you can basically get approved for most, if not everything. And then once you're over five years, that's really when you're going to start scoring up very, very high on risk assessments.
00:12:35
Speaker
right what What are some other key things that they look for like on your business financials? Like what are some KPIs or some statistics that I could look for and say, hey, I'm planning on doing investing or or working with you and next summer, let's say.
00:12:49
Speaker
Yep. What are some things I need to be doing right now to get to where by next summer when I hit you up, you're like, hey, this looks beautiful. Perfect. So besides credit, because credit is a driving factor, right?
00:13:01
Speaker
when you're looking at financials, that's really gonna come into play with the SBA. And what I would say is there's a couple just golden rules. but Right now at today's interest rates for every 55,000 in net profit that's on your tax returns, that will roughly equate to you getting approved on a working capital SBA for 350 over 10 years, okay? So 55,000 profit equals 350 over 10 years. Not to confuse you, but on a 504, and I know you get this,
00:13:31
Speaker
on a 504, which is the commercial real estate loan with the SBA, because it extends out to 20 and 25 years, that 55,000 in profit will actually get you about 700,000 with the SBA on that program. But that is only if you're buying a building that you're, you are going to operate out of.
00:13:54
Speaker
Okay. Okay. Now that makes total sense.
Risks in Financing and Diversification
00:13:57
Speaker
So pre-episode, we were talking about something we did not get to elaborate. i'm just Honestly, I'm just curious what it is. Golden handcuffs. What is it?
00:14:06
Speaker
So golden handcuffs, that's that's great. I got paint the entire picture. Yes. And this is something that is very, very common. And it's common in seven and eight figure businesses.
00:14:18
Speaker
And I'm going to tell you why. A lot of times, if you go to a local bank, They are going to roll out the red carpet for you because you're going to be one of their larger clients. All right. They're going to give you great rates, great terms. I've seen them actually come in prime, a point over prime, or even sometimes under prime, which is fantastic.
00:14:38
Speaker
But here's the problem with it. If you have all of your loans, all of your financing through one bank, the way they file UCCs, they have certain control over your business.
00:14:50
Speaker
So when you have so much with one bank, I call it golden handcuffs because they can control what you do and how you do it, which for a business owner, there is nothing more painful, right? So what I would suggest, and you don't have, I'm not saying work with me, but I'm not saying not not to work with me. If you want to work with me and you need to help, I'm here.
00:15:14
Speaker
Work with outside people and other banks on financing. Don't just go to your local branch because what happens is once they build up enough, you're going to be in a situation where it's going to be very hard to get out of. And then if you need more money and they say no,
00:15:34
Speaker
When you go to other banks and they see all the lien filings on you, there's not much they can do because there's no way that they can approve you for enough to pay off all the debt, which is why I call it handcuffs.
00:15:44
Speaker
Okay. You may elaborate just a little, if you don't mind, on because I know some people that aren't as familiar with like the UCC filings yeah and in the bank's position on your debt. Correct. You just correct very brief just going with that.
00:15:56
Speaker
Correct. Anytime a business takes any type of financing. legitimate financing. A lien is placed on the business. Now, if it's equipment, it should only be to the equipment, but I will tell you, i see more and more lenders do what they call all asset filings, which means they're not just filing against that equipment, they're filing against the receivables on the business.
00:16:19
Speaker
And the problem with that is, yeah The way the liens work, if you if someone were to go out of business, whoever is in first position has first rights on receivables, the equipment, and everything else.
00:16:31
Speaker
Once they get satisfied, then it goes to position two, position three, position four. And if you take an SBA loan or invoice factoring, they need to be in the first position.
00:16:42
Speaker
right Also, when you go to sell your business, if you have a laundry list of UCCs, you have to go back and get them all removed and prove that they're satisfied. So, and a lot of people, I would actually say 98% people do not get the UCCs removed. So if they go to sell, it probably adds a whole month to the process.
00:17:08
Speaker
And if not, like you just have a lot of UCCs on the business, which can impact future financing. So it is very important that when you are getting financing and multiple different types of financing, you work with someone that actually understands the order of importance so they can make sure all the programs are compliant and you're not doing something that's going to be a breach of contract with one of your lenders.
00:17:35
Speaker
ah That's super helpful. And that last part's an important one too for a lot of guys. so yeah Oh yeah. oh There are some companies out there, guys, that I promise you, it seems like their only mission is to put you out of business.
00:17:48
Speaker
You need to be careful. Yeah. Yeah. There's a lot of, and don't want to use the word predatory, but nothing else comes to mind, but there are. Brent, I have much stronger words than that for some of these guys.
00:17:58
Speaker
And I'm going to tell you something. I hate what they do.
00:18:04
Speaker
and ah And I don't like what it does to clients because it goes against my mission. It just makes my life that much easier because people get a different experience when they work with me and they they're not they don't feel like they just got dropped into the shark tank and you're not dealing with the wolf of Wall Street.
00:18:22
Speaker
okay And those guys make it very easy because when someone deals with a reputable company, they're like, oh, wow, this is how it's supposed to be. I'm not getting 50 phone calls in a day. I'm not getting all these text messages. I'm not getting you know bait and switched.
00:18:38
Speaker
It's a breath of fresh air. So I approach it as a consultant that is there to help you hit your goals and that's all I'm doing. And I'll find the right financing for you from that point. Yeah, that's awesome.
Equipment Financing: Leasing vs. Purchasing
00:18:50
Speaker
One thing I did have for you that I know, again, contractors, I've heard many debate it, which is better, but buying equipment, when to lease and to purchase instead, what are your thoughts on that front?
00:19:03
Speaker
Never lease. Never and here's why I'll tell you that when I say I do a lease with a dollar buyout It matches the terms of an equipment purchase The reason I say do not lease and the reason why we don't offer leases here is because I have seen way too many People get into really really really bad leases that are going to hurt their business Okay, ah for example If you were to get a lease, i actually have two of them right now.
00:19:35
Speaker
I have two leases that these people signed, they've been paying on for years and they haven't done anything to the principal, right? And the reason for that is because they're auto renewal leases and they're really not supposed to take down the principal.
00:19:48
Speaker
Well, when that happens, You wind up paying, there's one guy I have right now that is paying, and I'm not kidding when I say this, he's paying $25,000 for a $10,000 trailer.
00:20:02
Speaker
I have to go in there, I have to refinance his trailer, put it under him, and make sure the payoff is is is done, and then he's gonna wind up paying on the new financing line. And it's a shame because he has a great business, but he basically donated most of the profits to this company.
00:20:21
Speaker
in this crappy lease. Okay, okay. So no lease, only finance. yeah Yeah, only purchase it. And here's the deal, when you lease it, you don't own it, it doesn't go on your balance sheet.
00:20:32
Speaker
So all you're doing is adding a liability. Why would you wanna do that? If you go to sell, right, and and you don't have any of the equipment owned, the account The company is not as valuable, right? Because there's not as many assets going with the company. So why would you want to set yourself up for failure like that?
00:20:49
Speaker
Yeah, yeah. ah That's good point. That's a very good point. I don't even think it's a debate, brother. Unless you know that that what you're getting has ah a termination or it's it's a fair lease, and you know you're going to beat the crap out of that equipment and there's going to be zero value at the end, you know I really wouldn't recommend it.
00:21:07
Speaker
Yeah, I can think the only one we've ever leased in the past and we actually just recently discontinued was ah some of our skisters we released direct from the manufacturer for a very short period of time because our industry is and incredibly rough on that specific piece of equipment.
00:21:22
Speaker
And we it was depreciating faster than what you'd ever finance it. But recently, since COVID, the value that equipment at end of our useful life has went up a lot.
00:21:33
Speaker
So now we would went through and now we purchased those instead of leasing them. So this is a good example, but that's the only one I think we've ever leased over the years is that one. And it's just because we destroy it. Yep.
00:21:44
Speaker
Skid steers actually have a different, like at some banks, they have a different classification. No one knows this, but they score up very, very high because of their resale value.
00:21:55
Speaker
Okay. Okay. Yeah.
Building Strong Business Credit
00:21:58
Speaker
um Earlier we talked about personal credit quite a bit, but we really didn't talk about business credit and that's not something I think a lot of owners think that much about.
00:22:06
Speaker
And they also, and I've been in this boat, you get a loan and most banks want you to personally guarantee it. um you You become very tied personally with your social security number to your federal ID number.
00:22:21
Speaker
What is some advice you have on that front? Perfect. So business credit is very important, but it's not the end all be all. You see a lot of people sell it as you're going to go out of business if you don't have this.
00:22:33
Speaker
Well, the reality is it helps. It's just another tool, but it's a tool, especially in the contractor space that everyone should have, because here's where it's going to help you. It's going to help separate some of the business and personal credit.
00:22:44
Speaker
It'll allow you to get trade lines with your vendors.
00:22:49
Speaker
That'll help you cashflow. Obviously it'll help you finance equipment, And then it will help you get an SBA loan. They do look at that. So what I would say is if you guys are listening, one actual takeaway, look up your business credit and claim it from D&B or Dun & Bradstreet. All you have to do is go dnb.com and claim it. But I'm going to give you a cheat code and Brent, I will send you my video on this so you can attach it on how to build business credit, at least the basics.
00:23:21
Speaker
So basically what you need is you need five things. You need a business email. So it's not Jonathan funds businesses at Gmail. It's Jonathan at integrated business financing. You need that tail.
00:23:32
Speaker
Cost you 10 bucks a month. You guys, every single person listening to this can absolutely afford that. Next, you need business phone number. It has to be an actual registered phone number to the business. It cannot be a Google voice number.
00:23:46
Speaker
You need a business address. It cannot be a PO box. It can be a home ah home address. Never, ever, ever have a PO box on any financing application. it's ah It'll get flagged for fraud.
00:23:59
Speaker
Next, you need a business bank account. I hope that's fairly obvious. And then last but not least, you need, even if it's just a one page website, you need a one page website that has the business phone number, business email, business address on that.
00:24:14
Speaker
Once you have that, it's called the five fundability factors. You go to DMV, you plug all those in, you claim it, you get your Dun & Bradstreet number. And then you start applying for business credit.
00:24:24
Speaker
An easy one to get right off the bat is called Uline. You could also go to Best Buy, Staples, Lowe's, Home Depot. And when you apply for business credit, you don't put your social on there. All you're going to do is you're going to put your yeah EIN and your Dun & Bradstreet number. They'll probably kick it back and say, hey, we need your social.
00:24:41
Speaker
Just tell them no, I'm only applying for business credit. Use it, pay it off, use it, pay it off. When you apply for business credit, business credit, like personal credit goes deep and somewhat wide.
00:24:53
Speaker
Business credit is super wide, meaning the more trade lines that are reporting and reporting positively, the better. It doesn't matter. Sometimes it does matter their size, but if you have, let's say 14 or 15 active trade lines that are reasonable size, your business credit's gonna go through the roof.
00:25:10
Speaker
Here's the other thing. Depending on if you're working for certain municipalities or governments, they will actually check your business credit and they may not let you bid unless your business credit is high enough.
00:25:22
Speaker
Okay, so it is important. i'll give you guys one last cheat code to help with personal credit. On your credit card, so you're going to see a due date and a statement date.
00:25:34
Speaker
Always have your card paid on or before the statement date for the statement balance. If you can set up auto pay like that, you should actually see an increase because the credit card reports the balance on the statement date, not the due date. So if you're paying it on that date or a day before that date, the credit card is gonna report much less of a balance, which is gonna lower your DTI, which is gonna raise your credit.
00:26:02
Speaker
that is That should be very helpful for everybody listening. Yeah, I actually didn't know that last one. Yeah, I usually just schedule it for the due date or whatever. But, you know, I think we go through um like the business cards. We'll just use them. We'll just pay every single Monday. We'll pay off whatever balance that is just to keep it always,
New Financing Options and Project Financing
00:26:22
Speaker
always low. So ah um any new programs that you currently have out? We've talked a lot of different ones. There's even a few on here that I wasn't aware of and even until the today. So it just shows the pure amount. Is there any other new ones out there that you want to talk about while while we're on here?
00:26:39
Speaker
Yeah, I mean, ah we have one that's inventory financing that's pretty good. We're getting a lot of people that are trying it and liking it. And then the one that a lot of people don't know about is actually an SBA loan.
00:26:53
Speaker
Everyone knows what an SBA loan is, but there's a SBA loan that's in beta, okay? And I have two banks testing it right now. And basically what they'll do is if you have 700 credit or better and you have great business credit,
00:27:10
Speaker
They will actually approve you even if you're not profitable. They'll give you up to 30% of your top line revenue from the prior year, but they cap it at 150. The reason me and you never talked about that, 150 ain't helping you, brother.
00:27:24
Speaker
that's ah That's a little piss dribble in a big bucket for you, and that ain't going to help. However, for the guys that are, let's say, starting off or doing less than what you're doing,
00:27:37
Speaker
150 is a real real deal that could be helpful. So that's a great program for for contractors that aren't claiming a profit. Okay. The one I thought that you had was interesting was the PO financing that you mentioned earlier. So I could really see that, especially like we were when we were moving from the seven-figure to the eight-figure mark.
00:27:57
Speaker
all of a sudden we started getting those bigger contracts that at that time were like, shoot, this is a lot of money out. And we've negotiated better payment terms over the years, but we had some back in the day that were 60, 90 and even the one that was 90, they paid late. So like there was literally one year, like we were 120, 130, which, you know, back then this was decade ago.
00:28:17
Speaker
That was painful. didn't have to wait that long. um And again, I didn't know anything about invoice factoring at that time, but that definitely would have been one that I would have said, here, Jonathan, please handle this one. um I can't sit for six months while I wait a wait payment for a major project. so But the PO one was was an interesting one took to me.
00:28:34
Speaker
ah Yeah, it is interesting, but in that same light, for what contractors are trying to accomplish, that project financing is going to be better. It kind of works similar to it, but not really. And here's what I love about the project financing.
00:28:48
Speaker
If you know they're going to charge you 5% per 30 days on what's drawn and you know you can actually get approved for 20% of the contract value, you can add the project financing into your bid.
00:29:03
Speaker
and maybe even cover a little bit more. So the GC or the person that is paying you guys, they don't know it, but they're already covering the cost of the financing, right?
00:29:15
Speaker
So it keeps your margins intact. And now you don't have to worry to scramble for cash. That's how I would set it up. If I was a contractor, the only two, there's three programs you really need besides equipment financing.
00:29:28
Speaker
You need project financing, invoice factoring, and a line of credit. You set up the invoice factoring first, you then you set up the line of credit, and then project financing is only based on that contract.
00:29:42
Speaker
So you can do that contract by contract. right And then the only other thing that you need is but anytime you get equipment, just please finance it the right way. Yeah, that makes sense. um So we try to keep the podcast 30 minutes to 40 minutes. We're getting close.
00:29:58
Speaker
So I wrote down a lot of questions that I had kind of from my experience talking rapid fire. Yes. But I also realize are active in a lot of different Facebook groups with contractors, with other business owners and entrepreneurs.
00:30:11
Speaker
What is something I missed that you're like, you know what? We have to talk about this in this podcast.
Common Cashflow Mistakes and Financial Health
00:30:16
Speaker
Brother, I mean, we touched on a lot today and it was really great. I would say the only couple things that I would advise is one of the cash flow rules.
00:30:31
Speaker
right So there's two things that I see contractors do a lot that actually hurt them. One is not having enough deposits in the bank. The reason the number of deposits matter is because it shows you have more clients.
00:30:46
Speaker
okay So the more clients somebody has, the less risky they are to lend to because if they lose one or two or even 10, it's not gonna hurt their business. That's number one. Number two,
00:30:58
Speaker
I have a rule of like 10 to 20% and here's ah here's what that means in layman's terms. Anybody, and this is any business, not just contractors, but I find that contractors violate this very frequently.
00:31:13
Speaker
Everybody should have 10 to 20% of their monthly sales average in the bank at all times. So if you're doing a million dollars a month, that means you need 100 to 200K in that bank at all times.
00:31:26
Speaker
If you have less than that, it can impact the type of financing that you get. That is a very, very important rule. Also, if you're doing profit first, okay, and I'm not gonna get into it, but if you if someone's listening right now, they're gonna know exactly what I'm talking about.
00:31:45
Speaker
Profit first is a nightmare of a system. It works amazing. However, there are some rules to it that they need to adhere by. The biggest rule is keep that 10 to 20% of your monthly sales average in the income account at all times.
00:32:02
Speaker
Because when you're going for any type of financing other than an SBA, they want to see the health of the business bank account where the money's coming into.
00:32:13
Speaker
And so even if you were trying to get equipment financed, it was a large piece of equipment I had to show the banks. and you're zeroing that account out or just leaving, let's say a thousand bucks in there. And because it's, let's say a million dollar piece of equipment, your payment's going to be 10 grand. Well, if they see that the payment's 10 grand and you keep a thousand in the bank at all times, they're not going to approve you, right? They want to see that, that you have five to 10 X what that payment's going to be. And if you don't, now they're worried about you making that payment.
00:32:44
Speaker
Yeah. Yeah, i know. Somebody once told me that they thought you should have like three months worth of expenses at all times. And that for some businesses that may equate to about that 10 to 20%, I would say, but that three months. And I, I look back and I think about like during COVID, you know, briefly it hit us, but not, it didn't hit us crazy hard for a long period of time. Like we ended up getting approved as that with a essential worker or whatever it was. yeah Eventually it took a little bit, but we got there.
00:33:11
Speaker
But I think back to some of the businesses that did not get approved for that and were based out of Illinois, which is which is one of the worst states that allowed like restauranters, you know, restauranters and people like that to come back and actually open their business.
00:33:24
Speaker
That was critical then. Like the ones the ones who did not have anything saved up at all, it ended them. So, you know, so anyway, so very good point there for the 10 to 20%. So Jonathan's.
Engaging with Jonathan on Social Media
00:33:35
Speaker
so jonathan Fire, as always, quick, to the point, very helpful, lot of knowledge. So I think you guys definitely should have got something out of this. So Jonathan, you've got way more to offer than this, even.
00:33:47
Speaker
Where can people find you? Hey, it's just Jonathan Federa on all socials. So LinkedIn, Facebook, Instagram. And my website, I'll give it to you and I'll give you some takeaways to add to this, but it's just integratedbusinessfinancing.com, my YouTube channel, just look up integrated business financing. I have 850 something videos there.
00:34:09
Speaker
Okay. So i' I promise you, whatever question you have, you can search that library and find that answer. I will give you credit. You are incredibly active online, so...
00:34:20
Speaker
ah We actually met in a different business group. Oh yeah. And then ah I'm active in a few different Facebook groups and we invited Jonathan to the Better Contractors private one. But you guys can watch a few videos there. He's getting started in it.
00:34:32
Speaker
ah Blue collar millionaire. I know you're super active in that when I see your stuff in there all the time. So that yeah, yeah. A lot of very good quick takeaways for you guys. So.
00:34:43
Speaker
But Jonathan, thank you so much for your time today. Absolutely fire episode guys. If you like this episode, please do share it. If you didn't like it, you shouldn't still be listening. So thank you all. Thanks.