The Best Finance Options for Construction Firms

Construction firms are in-demand. As this demand continues to rise, more and more residential and commercial properties are being built – and you don’t want to miss out on the action.

The problem is that, even though construction services are required, materials are in short supply, and shipping costs have gone up. These factors mean that not only has it delayed projects for building companies, but it has also led to certain firms permanently shutting down.

You don’t have to join them. The good news is there are various funding solutions available to keep the cash flowing, pay employees and suppliers, and keep projects on schedule. Below are the best financing options available.

Debt factoring

Now you might be wondering, what is debt factoring? Compared to other funding solutions, this isn’t as well-known. However, it is arguably the best short-term financing choice for those in the construction trade.

To clear things up, debt factoring – also known as invoice factoring – is where you receive funds instantly for any outstanding customer invoices. The lender will advance you most of the funds straight away, and once the customer has paid their debt, they will provide the rest of the invoice – minus a small fee for their work in the process.

For example, say a customer owes you £100,000. With debt factoring, you get the majority of the value up front. Then, when the customer has paid the invoice, the financer will provide the rest of the total minus their fees. This is a great choice when you need an instant injection of cash when working on a construction project.

Secured loan

If you’re uneasy about going with a loan that requires a personal guarantee, a better solution could be a secured loan. Although most loans do require a personal guarantee, some may not; however, they secure the funds you need against a business asset, from a piece of equipment to commercial property.

While an effective way to secure funds, there is one caveat – the loan’s value is capped to the perceived value of your business asset. As a result, it may not be suitable if you have no valuable assets.

Unsecured loan

When you have no valuable assets or any outstanding invoices, your financing options are restricted. However, there is one route you can take: an unsecured loan. Although unseured loans are likely to require a personal guarantee from the director(s) of a business, some are more flexible than others; it’s a case of shopping around to find the right deal that fits your business’s finances and circumstances.

As you might gather from the name, an unsecured loan sometimes involves no security for the funds. The consequence of this, however, is that interest rates are typically much higher than other loan choices.

Equipment leasing

Even though you run a construction firm, this doesn’t necessarily mean you have to purchase expensive equipment outright.

After all, you can make use of equipment leasing instead. Rather than purchasing items such as drills and diggers, you simply lease them by paying a set total each month. This means you can “hire” them for projects on an ongoing basis – unlike a standard rental agreement. It’s important to note that equipment leasing may involve maintaining the tools used, too.