What financing is usually needed for construction companies?
The construction industry is usually divided into three sectors: buildings (housing and not housing), infrastructure (such as the construction of public facilities) and industrial companies (factories and facilities). Each sector offers services such as project management, subcontracting and cleaning of construction sites.
Construction loans can be used for various business needs, as below
Construction needs are quite expensive – such as concrete pumps, welding equipment and construction vehicles – to get these tools usually requires financing from outside parties. The choice of a loan for equipment or leasing can help you to ensure you have the necessary equipment, without burdening your working capital.
Overcoming Seasonal Fluctuations
The burdensome regulations and economic downturn of the company and other problems that may arise suddenly can cause disruption and decline in your business. To overcome this period, you might want to consider using an unsecured loan or credit line.
Covering Employee Salary Payments
External financing can help you to pay for the need to provide employee salaries, such as adding staff, implementing security training programs in the workplace or implementing training schemes and programs to improve workers’ abilities.
Business Expansion Activity Fund
Insufficient funds, high competition between contractors and limited credit access; this is a common problem faced by small contractors when getting large projects. Get flexible and appropriate capital without burdening your company’s finances so you can compete to get more profitable projects.
New Technology Investment
The increasing complexity of construction projects, restrictions on labor from abroad and the increasing demand for environmentally friendly development are demands that compel construction companies to start adopting new technologies.
Technologies such as building information modeling (IBM) and design for manufacturing and assembly (DfMA) can help increase productivity, but usually require upfront investment and high costs in the first years. Without external funding, implementing this technology can be a tough challenge for small and medium contractors.
What types of loans are available for construction companies?
Loan with guarantee
This type of loan requires the borrower to provide assets for collateral. If the borrower violates the loan agreement, the loan provider can sell the asset to cover the unpaid debt. Credit lines and tool financing are examples of loans with guarantees that can be obtained.
Unlike collateral loans, you do not need to provide collateral for this type of loan. But the assessment is weighted on your business credit score and the strength of the flow of funds. The requirements for this type of loan are quite strict, it will be easier for small construction entrepreneurs to look for other options, such as lines of credit that can be used to cover the funding gap during difficult times.
A credit line or also called a revolving credit that can be used by the borrower to access a number of previously agreed funds. You can withdraw cash whenever you need, interest is only paid according to the amount taken.
This financing method is flexible and the funds can be used for various company needs such as operating costs, and unexpected costs due to the cash flow gap.
Equipment leasing is not a loan but a long-term agreement to the company. Instead of buying a tool, you can pay rent for the tool every month according to the agreed duration. At the end of the agreement you have the choice to return the tool or buy it at market price.
This type of loan is suitable for companies that need large-scale equipment, but have not been able to pay for maintenance costs or replace their equipment due to damage.
Here are tips for preparing your loan application
You have been given a description of a construction business loan, now we see what tips and tactics can be done to maximize your chances of getting a loan:
The importance of a stable and consistent company growth
Fast growth is not always better because at the same time there are challenges to cash flow and operations that are a risk for your business. It is better to show business growth and stable cash flow, it shows that you can afford to pay the loan consistently.
Pay attention to details
To get the trust of the loan provider, you need to show that you have a clear plan for the company’s finances.
Clarify and give as much specific details as possible to your plan. If you are looking for leasing, you need information about the tools you will borrow and prepare an explanation of why this tool is needed for the growth of your company.
If you are looking for a loan for a construction project, make sure you have planned the construction, construction contract, possible income and estimated costs must also be prepared. You might also need a plan to keep lenders informed about the progress of your project.
Plan a payment strategy
The lender will check your ability to repay the loan, having your payment strategy plan can show your consistent and timely capacity in payments. Your plan must include estimated income, as well as cash flow projections for the next three years. It will also be useful if you enter a construction project that you have guaranteed or get to show you have a sustainable project.
Where can you get a loan for a construction business?
Running a construction business requires a fairly high cost, you usually need financing from outside parties. Banks have strict requirements and a long process, this can make you uncomfortable and may require other options.
With Astro online loans, the loan application process is more current, reliable and fast, sending out loan applications in just minutes and you will be confirmed within 24 hours.