In any industry, it is crucial to have capital on hand for emergency purposes. Especially in construction, emergencies come up and require business owners to think quickly to react to crises for their clients. That means knowing how to utilize funding options that can get you quick funding resources to act fast.
In this article we are going to cover three ways to obtain financing relatively quickly, compared to other lending options. By understanding these three lending products, you can have some choices when it comes to emergency financing for your construction company.
Invoice factoring refers to selling accounts receivables for quick cash. If a business works with contracts or invoices, their clients have terms of certain length to pay off their bills. Invoice factoring allows business owners to leverage secured funds from accounts receivables before their customers make payments.
Sometimes a small business owner can’t wait for their clients to make payments, so they sell their accounts receivables to a factor company. The client completes the invoice payments to the factor company instead, and the borrower can get immediate cash to react to emergencies.
A business line of credit works basically like a credit card, but uses cash that your business can withdraw. There are no restrictions on purchases that a business line of credit can cover – making a line of credit perfect to cover emergency financing for your construction company. When your client calls and needs a job done quickly, you can use a business line of credit to act fast and get the resources you need.
Another reason that a line of credit is a good funding option to finance emergencies is because it is a revolving loan product. This means that the available funds go up and down based on payments made. Once you pay toward the amount owed, the amount available goes back up – which means if you make your payments you can have funds available for an emergency. When a crisis occurs, you can act fast and spend the money you need, and pay it later back when things settle down.
Another funding option that is available for construction emergencies is equipment financing. There are two financing products for equipment: equipment leases and equipment loans.
An equipment lease is basically like a rental. Your construction company can borrow equipment from a lender, making payments over the terms of the lease. At the end of the terms you can continue to make payments and extend the lease, stop making payments and end the lease, or sometimes buy out the equipment from the lender. An equipment loan is a lump sum term loan to cover the cost of an equipment purchase.
Equipment financing is a good option for construction emergencies because it gives your construction company financing options rather than having to make expensive purchases outright on the spot. Instead of one large purchase for the equipment needed to act fast in an emergency, you can cover the cost of the equipment over the terms of an equipment lease or loan.
Jake is the Chief Marketing & Strategy Officer at SMB Compass. Jake is also the President of Reach Digital, an internet marketing company.