Most of Lars Construction’s projects were being funded by homeowners’ home equity lines of credit and other lines of credit. A few months ago, mid-construction, more than a dozen clients had their credit lines pulled back by the banks. “We’d get to the end of a job,” owner Jason Larson says, “the client still had 15% on the contract to pay, and suddenly they had no money.”
So the La Mesa, Calif., remodeler essentially became the bank, financing clients at a high interest rate, working out three- and five-year payment plans. Despite a healthy cash flow and lean operation, Larson knew this was no way to run his business. Then he discovered fund control, an escrow tool run by a neutral third party. Now, through building materials supplier ProBuild’s fund control — operated by a local San Diego lumber company — clients can take their entire line of credit, for example, and deposit it into an escrow account. ProBuild charges a fee of about 2% for the interest-bearing account, which is FDIC insured up to $250,000. All the money is earmarked for a particular job and disbursements are tracked.
“I don’t lay awake at night wondering if a customer is going to have the money to pay,” Larson says. “As soon as we hit our milestones [per inspection], we instigate the draw. The client sends a voucher to the escrow account and the money is wired right into our bank account.”
The fund also requires Larson to submit lien releases as he draws money, so homeowners won’t be surprised in the future by a subcontractor lien. Best of all, they don’t have to worry about the bank pulling their line of credit.