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Construction companies face many complex challenges day-to-day. From long payment cycles to complicated supply chains it can be difficult to operate in a streamlined and efficient way and to effectively navigate a path around these issues.
Funding is one particular area where construction businesses need to meet specific requirements - accessing expensive hard assets in a way that’s affordable to them and that doesn’t use up valuable capital.
So what finance options are available for construction companies and how do you access them?
A range of alternative financing options exists that are ideal for construction industry needs. Construction supply chains are notoriously complex but a specific form of funding can ease the problems that threaten to disrupt entire construction projects.
Construction supply chain finance
Large construction companies generally seek supply chain finance to prevent disruption. This type of funding is also a significant help to smaller suppliers as they receive immediate payment from the financier of buyer-approved invoices.
The immense benefits of this allow small construction suppliers to operate with more ease and confidence that they’ll have the working capital they need when they need it. Crucially, they don’t have to seek this financing solution themselves.
Their buyer arranges the finance and can also take advantage of an extended repayment period. Additionally, this type of funding relies on the credit rating of the larger company, making it more widely accessible.
Equipment finance and refinancing
Equipment finance allows construction companies to purchase expensive equipment affordably. Hire purchase contracts enable ownership once the final payment has been made, but the flexibility of leasing may also be attractive.
Refinancing existing pieces of machinery introduces a significant cash lump sum into the business, with no interruption in the use of the asset. The money can meet a range of financing needs – funding new projects, for example, or providing reassurance regarding cash availability.
Given the long payment cycles inherent in the construction industry, a form of funding that reduces the risk of cash shortages and minimises bad debts could be crucial for some companies.
Invoice financing provides a regular cash injection, the value of which is based on your unpaid invoices. Essentially, a factoring company or invoice discounter releases around 90 per cent of the value of eligible invoices, typically within 24-48 hours. The remaining amount is then paid when your customer pays.
This regular boost to working capital means you can bid with confidence for new projects, knowing you can fund any extra requirements or grow with your cash flow being supported.
UK Business Finance are commercial finance brokers with extensive experience in helping construction companies obtain the best type of funding for their needs. We take a whole market approach and will guide you towards the right types of finance with the best quotes.
Our services are free of charge and we can also make an application for construction funding on your behalf. Please get in touch with one of our expert team to find out more about finance for your construction company.
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Can I use property as security for a business loan?
Secured business loans require one or more assets to be put forward as collateral. This protects the lender from financial loss if a company cannot afford to keep up with the repayments at any stage.
Does my company have a credit score and how can I improve it?
Limited companies do have credit scores and they’re used for a similar purpose as individual credit ratings. Lenders use them as a guide to creditworthiness, but a business credit score is also useful for suppliers and investors to gain insight into your company’s financial situation.
What is bad debt and how can I protect my company?
Bad debt presents an insidious threat to the financial stability of your business. It places strain on your working capital and creates uncertainty in paying your bills, but this can be addressed successfully if you take proactive steps to protect your company.
What is the difference between open and closed bridging loans?
Bridging loans are short-term forms of secured finance that literally ‘bridge’ a gap between funds going out of a business and monies coming in.