As in all industries, it is crucial to have capital on hand for emergency purposes. Take the construction industry for example. Emergencies tend to pop up that require business owners to think quickly in order to react to a crisis. This requires knowing how to utilize the various funding options that are available, in order to react in the best interests of your company.
In this article we are going to cover three ways to obtain financing relatively quickly, compared to other traditional lending options. By understanding these three lending programs, you will become aware of the choices available to you 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 various terms in which they can pay their invoices. Invoice factoring allows business owners to leverage secured funds from accounts receivables, long before their customers are required to submit a payment.
Sometimes a small business owner can’t wait for their clients to pay an invoice due to a variety of reasons, compelling them to sell their accounts receivables to a factor company. The client taps into the invoice factoring program, giving them immediate cash to use as needed.
Line of Credit
A business line of credit works basically like a credit card. There are no restrictions on purchases that a line of credit can cover, making it a perfect emergency source of funds for your construction company. When your client calls and needs a job done quickly, your business line of credit gives you the ability to act fast and acquire the resources you need.
Another reason that a line of credit is a good funding option is because it is a revolving loan product. This means that the available funds go up and down based on the payments you make. Once you pay down the amount owed, the amount available goes right back up. This means if you consistently make your payments you will have the funds available if, and when an emergency arises.
Another funding option that is available for construction emergencies is equipment financing. There are two financing programs for equipment: equipment leasing and equipment loans.
An equipment lease is basically structured like a rental agreement. Your construction company can borrow equipment from a lender and making payments over the term of the lease. At the end of the leasing period you can continue to either make payments and extend the lease, stop making payments and end the lease, or purchase the equipment from the lender. An equipment loan is a lump sum term loan that covers the entire 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 that can deplete your cash reserves. Instead of a large purchase for needed equipment, you can cover the cost of the equipment over the terms of a lease or loan.