The construction industry, for the most part, is quite capital sensitive and operates on a different invoice structure than other business types. For trade services that handle large scale or commercial projects, the typical project terms offer the business only 25-50% upfront, leaving the balance billable only after the project has been completed. Since there are usually costly materials involved in construction projects, this can place many businesses in the struggle of only taking on one project at a time – constricting revenue. Between depreciation of equipment, maintenance costs, raw materials, and a roster of capable employees (among many other expenses), many construction companies rely on alternative funding products to alleviate the financial burden. Since we love our research, the Empower Lend team is here to help by sharing our top 3 ways for construction companies to get funding.
Understanding the various types of business funding products available on the market is the first step to achieving a balanced budget. Since every business is unique from the next, even when sharing the same industry space – each essentially has a funding product that is better suited for them than another. For the construction industry, the goal is to utilize the funding resources that enable your business growth, simultaneous projects and of course, flexibility.
What is a Business Line of Credit?
A business credit line is a type of revolving credit that allows a business to borrow a lump sum from a lender that you can draw from as needed – rather than allocating the entire funding amount at once. Under this type of funding structure, the business would only then be responsible for the amount drawn from the account. Credit lines can be very useful in helping construction companies make large purchases without increasing the liability of debt.
This can be especially helpful for construction companies as they can utilize the funding when needed rather than decline a project or sacrifice the quality of materials. While business credit lines do not run on an infinite resource loop, it is highly recommended to choose a time period that best covers your business. It is also important to remember that once the term of the business line of credit expires, you will be responsible to repay the open balance drawn from the account as agreed.
Prefer SBA Loans Instead?
Specifically, The CDC/504 loan is used for purchasing land, improving a property, or buying long-term equipment and machinery. SBA loans are partially guaranteed by the government and usually, have lower interest rates than traditional bank loans. The process usually takes upwards of 90 days and does require both standard and specific loan requirements as well as compliance with the SBA policies on the character of the business.
SBA loans are a great way to avoid placing an excessive amount of debt on your business and can help budding construction businesses internalize the burdensome costs of purchasing expensive equipment relatively easily.
Utilizing Equipment Loans for Business
Equipment financing loans provide the ability to purchase new or upgraded equipment for your business without being forced to commit to a larger loan or longer terms. Since the majority of business owners do not want to be responsible for more funding than they originally need or be weighed down for longer than they have to – many are choosing the road of least resistance. Similar to business credit lines, equipment finance loans also have a term attached. However, with this type of business funding, many lenders will offer a leaseback option at the end of the term. This may allow business owners to sell the equipment to the finance company which would, in turn, be leased back to you by the lender.
Equipment loans tend to be much less stringent than SBA loans in their requirements mainly because the equipment has inherent collateral and the lender can always get the equipment back. As an added perk, many equipment finance loans are also tax-deductible.
For those who believe that traditional bank loans are not the best-suited funding option for their construction company, equipment financing loans offer flexible terms to help you upgrade your equipment to increase production.
Ready to learn more about how you can secure funding for your construction business? CLICK HERE