4 Ways to Obtain Emergency Financing for Construction Companies

Last Updated Jul 3, 2020 | Published on Dec 3, 2018 | Equipment Loans, Invoice Financing, Small Business, Working Capital

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.

Emergency Financing Options

Alternative online lenders are primarily the ones that offer emergency financing options.

Compared to traditional lending companies, alternative lenders have a more lenient application process that requires less paperwork. You can apply for emergency financing if your construction company is generating a low amount of revenue, you have bad credit, or you’re faced with unforeseen expenses.

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

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 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 factoring 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 that 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.

Equipment Financing

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.

Asset-Based Loans

It’s likely that you won’t qualify for unsecured bank loans if your company is facing a cash crunch. Fortunately, you may have a better chance of qualifying for an asset-backed loan. Unlike traditional lending options, asset-based financing uses the value of your assets to secure the loan, rather than use ongoing cash from your company.

Keep in mind that alternative lending companies will seldom hesitate to repossess your assets after a few missed payments. Additionally, you may need to pay a stiff premium compared to traditional commercial bank loans.

If you choose to borrow money from alternative lenders while you’re already borrowing from a bank, you need to ensure that applying for asset-based loans will not violate your existing loan agreement. If it doesn’t, it’s better to inform your bankers of other loans you might undertake.

Know More About Your Options

Construction companies, just like any other business, face cash flow issues every now and then. If you want to know more about your emergency financing options, it’s best to talk to a financial expert. They will walk you through your options and help you decide which financing solution works for your company.

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