In the construction industry, it’s important to utilize multiple funding routes 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, it is important to discuss your decision with your financial professional. You’ll want to consider the length of terms you are looking for, the types of expenses you need cash for, and the specific options available for you. Here, we’ll cover 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 to 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 is 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 lease terms, your construction business can end the lease and stop making payments, extend the lease and keep making payments, or sometimes buy the equipment outright from the financing company.
An equipment loan is a lump sum term loan with the restriction that the funds must be used to purchase new or used equipment. Much like a car 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 work with clients on the terms of invoices, the client has the length of the terms of the invoice to make the payments. However, sometimes the construction company can’t wait for their clients to complete their purchases, so they need to sell their accounts receivables to leverage secured money and build up cash flow for your construction firm.
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 toward the amount you owe, the amount available goes up. This makes the line of credit great for your construction firm’s cash flow because when you need cash, as long as you make your payments, the line of credit is there for you.
A final option for construction firms to build better cash flow is a multi-year term loan. These short-term loans offer small business owners flexibility to consolidate debt, capitalize on growth opportunities, equipment purchases, or any other business expense. There are no restrictions on multi-year term loans, which typically last for 2-5 years.
Jake is the Chief Marketing & Strategy Officer at SMB Compass. Jake is also the President of Reach Digital, an internet marketing company.