Commercial Factor Q&A: Scott Applegate Explains CapitalPlus’ New Material Financing Initiative

CapitalPlus Construction Services expanded its product offerings at the end of March by launching a material financing company called CapitalPlus Supply Chain Partners. Through the new company, CapitalPlus will purchase materials on the behalf of contractors and subcontractors to free up cash flow. This product would be beneficial in most environments, but it will be particularly helpful as the construction industry deals with the current and future effects of the COVID-19 pandemic.

Scott Applegate, president of CapitalPlus Construction Services, spoke with Commercial Factor about the new company and how it fits into CapitalPlus’ construction industry-focus.

Why did CapitalPlus Construction Services decide to enter this market? 

Scott Applegate: CapitalPlus has been providing working capital and other services to the construction industry for more than 20 years. We are continually striving to provide increased value to our clients via innovative products and services. The supply chain is vital in all business, but it is especially so in the construction industry. Almost all projects require the stacking of sub-trades, so a delay for one sub usually has a domino effect on all the other subsequent subs. CapitalPlus Supply Chain Partners was established to help eliminates those risks for the sub-trades and general contractors.  

How did the process unfold from idea generation to launch? 

Applegate: Our clients have requested material financing for years, but I just couldn’t figure out a way to provide it. We are fortunate to be located near one of the top-rated university supply chain programs in county. After hiring a couple of graduates with supply chain degrees, we started working on processes and procedures to supply materials for our clients. After nine months of discussing with some of our current clients and working with software designers, construction attorneys and numerous suppliers, we were finally ready for our launch.   

Will there be a dedicated leader of this part of the business? If so, who will be leading? 

Applegate: I am president of CapitalPlus Supply Chain Partners, so I will be leading the business as well as continuing as president of CapitalPlus Construction Services.

What opportunities do you see in this sector? 

Applegate: Construction is all we do, so I obviously see opportunity here. This product enables us to assist our clients on all projects from beginning through completion. In the past, our clients were required to purchase all material and pay for all labor until such time as an invoice was generated, at which time we could factor the invoice. Now we are able to purchase the material for our clients and allow them to pay us when they get paid either from factoring or when they are paid. This product also allows us to move higher up the construction chain. We can contract directly with general contractors to purchase all materials for a project. This enables them to get the exact material quality required and they only need to manage the sub-trades labor. The sub-trades benefit because they don’t have to use their working capital to purchase materials. 

How does this product complement CapitalPlus’ existing offerings?

Applegate: Contractors deal with many aspects of construction that create cash flow impacts. One of the biggest impacts is having to front the cost of building materials out of your pocket and not being able to invoice for them until the materials are incorporated into the project. Using factoring, we can improve cash flow and lessen the impact but not alleviate it. With material finance, we can purchase the materials upfront with little immediate out of pocket expense. This allows contractors to use their funds for payroll and other essential project related items. At the end of the month, the contractor can then create an invoice that can be factored. 

What are your expectations for the construction industry the rest of the year and how will that impact the factoring world?

Applegate: No one has a crystal ball, or at least a clear one during these trying times — it is murky at best. That said, COVID-19 caused many projects to be put on hold and sidelined much of the investment money. This has, in effect, created pent up demand in many areas.  Also, there is a lot of talk of infrastructure spending, which is greatly needed and would benefit the construction industry. With the country moving toward opening up, we can expect to see construction pick back up. That said, COVID-19 has created a new normal with regards to working remotely. This has many companies reducing their brick-and-mortar footprint. We may not see the real impact of this for a couple of years when current leases expire and are not renewed or are drastically scaled back.