In the construction industry, it’s important to utilize multiple funding sources in order to build a strong cash flow. In this article, we are going to discuss four lending options that can help you build better cash flow for your construction firm.
With any lending product or program, it’s important to discuss your options with a financial professional. You’ll want to consider things like the length of terms you desire, your needs for the cash along with the various options available to you. In the following report, we’ll discuss Equipment Financing, Invoice Factoring, Lines of Credit, and Multi-Year Term Loans.
Equipment financing refers to either an equipment lease or an equipment loan to cover the purchases of used or new equipment. The biggest benefit of equipment financing for your construction company is that it frees up cash that you can spend elsewhere. Instead of making big purchases outright for new equipment, you can use equipment financing to make your large construction purchases.
An equipment lease works basically like a rental. Your construction firm makes payments to the equipment financing company in order to use the equipment you need. At the end of the leasing term, your construction business can end the lease and stop making payments, extend the lease and keep making payments, or purchase the equipment outright from the financing company.
An equipment loan is a lump sum term loan that comes with a restriction that dictates the borrowed funds must be used only to purchase new or used equipment. Much like an automobile lease, your construction firm can make payments over the extended term of the lease rather than making one large purchase up front.
Invoice factoring refers to the process of selling accounts receivables to a factoring company. For construction companies that extend payment terms on invoices to customers, the client can wait the full length of the terms on their invoice before paying it. However, in many cases a construction company can’t afford to wait for a payment for a variety of reasons, compelling them to sell their accounts receivables to a factoring company in exchange for immediate cash.
Lines of Credit
A business line of credit is like a credit card, but with cash that your construction company can withdraw. A business line of credit is great option for construction companies because there are no restrictions – the line of credit can be used for inventory, equipment, payroll, or any other operating expense. You can do whatever you want the money.
A business line of credit is a revolving cash line. As you make payments on the balance owed, the amount available to you goes back up. This makes a line of credit an excellent source of funds for your construction firm. As long as you maintain your payments, the line of credit is yours to use, when and where you need it.
Multi-Year Term Loans
A final option for construction firms that improves cash flow is a multi-year term loan. These short-term loans offer small business owners flexibility as well as an opportunity to consolidate debt, capitalize on growth opportunities, make equipment purchases, or meet a sudden business expense. There are no restrictions on multi-year term loans, which typically last for 2-5 years.