All About Materials Financing | Nav

If you own a construction company, you probably know that getting paid for your work can take a while. Building materials financing provides a tool to help you get the building materials you need without having to use up all of your available cash. With building materials financing, you work with a partner who pays your materials supplier directly for the materials. You pay them back when you get paid, with payment terms of up to 120 days. Funding is provided before the project begins, so you are not responsible for spending any money to get the project off the ground.

In this article, we’ll explain what you need to know about materials financing to determine if it’s the right financing option for your construction business. We compare material financing to invoice factoring and cover the key benefits and considerations.

Building loans and material financing

Running a business in the construction industry requires a lot of cash up front. Combine that with the fact that it’s notoriously difficult to get paid quickly and you can see how funding can be an immense help. Two of the most common forms of building materials financing are home loans and materials financing. But you can also find flexible financing alternatives that can work, which we explain later in this article.

home loan

Standard home loans give you money for anything related to a construction project. However, qualifying for them can be difficult as you will be approved for a loan for something that does not yet exist and it may take longer to get the required funds. You also need to make sure your business credit is up to date in order to qualify for credit and get better terms. Learn how to set up a business loan here.

material financing

On the other hand, building materials financing can be easier to come by. Some lenders focus their lending solely on the building materials, and others allow you to purchase everything you need to run your business — including building materials.

This funding helps in situations where you don’t get the funds from your last project before the next project starts, causing liquidity problems. But if you have access to materials financing, you can prepay for the building materials instead of waiting for your last customer to pay. This allows you to grow your business faster by being able to bid on larger contracts that you otherwise could not afford.

Material financing can also give you the best price from suppliers as you can get discounts for paying in cash. And depending on the lender, you can sometimes get the financing on the day you apply. However, pay attention to the interest rate, as this can be higher than with a classic construction loan.

Material Financing vs. Invoice Factoring

Materials financing and invoice factoring are both ways to finance your construction business, but that’s where the similarities stop. Materials financing is when you work with a lender to prepay for building materials. Invoice factoring is when your company sends your customer invoices to a factoring company. The factoring company pays your company a percentage of these invoices up front and then contacts your customer directly to ensure they pay the invoice. After the invoice is paid in full, the factoring company gives your company the rest of the payment.

Here are the key differences between the two types of funding:

  1. Material financing supports you earlier. The materials finance company will purchase materials before you begin a project. Meanwhile, invoice factoring takes place after the job is complete and you are ready to send the invoice.
  2. The lender remains separate from your customer. With invoice factoring, the lender pays you the invoice and then contacts your customer directly for payment. With material financing, you are the only party that interacts with your customers.
  3. Invoice factoring takes away the burden of getting paid. Lenders who offer invoice factoring take care of finalizing invoice payments for you. Material financing does not have this benefit.
  4. Different repayment terms. With material financing, you usually have up to 120 days to pay back the balance. With invoice factoring, you make a set number of payments over several weeks, sometimes weekly, until the balance is settled.

Why would general contractors prefer subcontractors using materials finance?

As a general contractor, working with a subcontractor using materials finance means the project stays on schedule. You don’t have to worry about your subcontractors not being able to pay for their building materials on time. Working with someone who uses mortgage lending also reduces the risk of having to change subcontractors mid-job because they can’t keep their end of the bargain.

You’ll help maintain your reputation by increasing your chances of completing your projects on time.

When is material financing not the solution?

If you are not ready to grow your business, material financing may not be the best option for you since you will have to pay interest. It gives you the opportunity to take on a large project before getting paid for the last one, but you have to pay to borrow the money for materials. And the interest rates for mortgage lending can be higher than for classic construction loans. Companies that are not yet at a point where they are increasing the number of construction projects they take on may not find materials financing worthwhile.

Even if you only do residential construction and not commercial construction, building materials financing may not be the right choice. Commercial construction projects are tighter on schedule than residential construction, so borrowing the extra expense of buying materials for a residential project may not be worth it.

Finally, if you need home financing longer than 120 days, you might want to consider other small business loans or lines of credit.

Where can I find material financing?

If company credit cards are insufficient to cover the materials needed for your construction project, you can contact materials finance to provide cash for the building materials you need. Here are some online lenders that specialize in materials finance.

level set

level set offers material financing with terms of up to 120 days. So you will probably have to pay longer than if you buy the materials directly from the supplier. You pay weekly fees and then the full balance once you get paid for the project. There is a $5,000 minimum purchase requirement for Levelset funding.


picture also has payment terms of up to 120 days and gives you your payment details in advance. There are no surprise fees. You can be approved and payment sent to your supplier the same day you apply. You can make payments directly on Billd’s online platform. However, Billd will not finance any housing projects.

More flexible options

You may think that you have to work with certain materials finance providers to get financing for your building materials, but that is not the case. There are other flexible financing options similar to business loans that you can use to buy whatever your construction business needs.

Here are some alternative lenders you may be able to work with:

How Navi can help

Creating a free Nav account is the quickest way to find the best financing options for your business. Just fill in some business details and we’ll do the work on the backend to find the options you’re most likely to qualify for.

This article was originally written on June 29, 2022.

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