Financing a Property Preservation Company
Do you own or plan to start a property and foreclosure preservation company? Read this article to learn how to finance your growing property preservation business.
Out of challenge comes opportunity. The real estate bust has forced a number of banks , trusts and real estate companies to foreclose on properties. Basically, they were transformed from being mortgage holders into being property owners, at least until they could sell the properties in the open market. This created a serious challenge for banks since they do not have the staff or expertise to maintain these properties. And with this, a new opportunity was born for property preservation companies.
Any home owner knows that houses and apartments need a lot of care. It's seems that almost every week the yard needs work or something needs to be fixed, patched or painted. To make matters more complicated, few foreclosed homes are returned in good condition. Far from it. Most are full of debris, in poor shape and in need of substantial repair work. This is where property preservation companies come in. They are the first ones to come into the foreclose property and restore it into good shape, making the property livable again. Then, once the property is restored, they work maintain it to ensure that it remains in good shape.
By their very nature, property preservation companies are labor intensive. They need a staff of people who are proficient at fixing things. They also constant need of supplies in order fix homes. Their biggest problem is that most banking customers pay their invoices in 30 to 60 days, which creates a cash flow problem. The property preservation company needs to cover all its expenses while waiting to be paid. This can be very challenging since few companies are well capitalized and can't afford to wait. Furthermore, it's hard to grow a company if you have to keep a large reserve of cash just to cover current expenses.
One way to solve this problem is to use business financing. However, few companies can qualify for conventional business loans, especially since banks and other financial institutions still have some reluctance to lend. One alternative that has been gaining popularity is called invoice factoring. This solution reduces the time it takes your company to receive payment down to 2 days. Factoring invoices provides your company with predictable cash flow and eliminates the guesswork of when you invoice will be paid.
The most common way to set up a factoring transaction is to have the factoring company act as an intermediary between your company and your customer. Your company sells the invoice to the factoring company, who pays for it immediately. The transaction concludes once your customer pays the invoice in full. At that time, the factoring company settles the transaction.
Most factoring companies purchase invoices in two installments. The first installment is called the advance and is given to you at time of purchase. Most advances are for 80% of the gross value of the invoice. The second installment is called the rebate and is provided to your company once the customer actually pays for the invoice. The rebate will be for the remaining 20%, less any financing fees.
The most important requirement to qualify for invoice factoring is to have credit worthy commercial customers. This is because their invoices are the collateral that the factoring company is purchasing. Property preservation companies have a nice advantage here since most banks are still reliable payers. Additionally, your company needs to be free of liens , judgments and legal problems.
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