An unfortunate reality for owners of construction companies is that equipment can be quite expensive. However, there is good news: Several financing different methods, each with unique strengths, can help construction companies raise the funds they need.
Business Line of Credit
A business line of credit gives the borrower access to a pool of money. The borrower can withdraw money as they need it, then replenish the pool as they pay back the money. The flexibility of this option is excellent. However, borrowers need to be on the lookout for interest rates and hidden fees.
SBA 7(a) Loans
Loans facilitated by the Small Business Administration (SBA) can be useful for construction companies. With this type of funding, the SBA backs the loan to make the borrower more attractive to the SBA-approved lender. For small businesses, the SBA 7(a) loan is the predominant choice. You can learn more about the program here.
Invoice Financing and Factoring
For sprucing up a company’s cash flow, invoice financing and factoring can be of use. With invoice financing, a lender advances part of the value of unpaid invoices, then collects the money back once the invoices are paid. With invoice factoring, the lender buys the invoices at a discount and then collects the money from the invoiced clients. Both options provide quick access to money but may have high fees.
Construction companies that need short-term funding for a specific project might consider applying for construction loans. These require good credit and a hefty down payment of 20–25 percent. The funding comes in installments rather than a lump sum. The upside is that these loans tend to have lower interest rates.
Equipment loans serve a specific purpose for construction companies: purchasing needed equipment. These are most useful for obtaining pricey equipment that the company will use for a long period of time.
Whether you’re in the construction industry or another line of business, take a look at Purevue Capital’s other blog posts for more financial tips!