Different Financing Options for Construction Companies
If you own your own construction company, one of the largest challenges you will face is finding reliable financing options for your business. It is unlikely to assume that you will have enough starting capital to purchase equipment, pay for licenses and certifications and to purchase liability insurance. You will need to seek out other methods for acquiring startup money. There are many ways to do this, so you will have to choose the option that is best for you and for your growing business.
Commercial Bank Loans
Applying for a bank loan is one of the most popular methods by which those in the construction industry gather startup money. These loans offer a lump sum that will be paid off over a specific period of time, as agreed upon between the business owner and the lender. Payments are made monthly and include a certain amount of interest, depending on the credit score of the borrower.
Line of Business Credit
You may already be familiar with how credit cards work. Business credit is very similar. When you apply for a business line of credit, you are approved for a certain amount of money from which you can borrow. The amount you receive is often dependent on your personal credit score; the better your personal credit score, the larger your business credit limit can be. The amount you borrow is paid off monthly and is subject to interest.
Equipment Financing and Leasing
Acquiring equipment is one of the most important things to do for business owners in the construction industry. Without equipment, you cannot complete any work! There are two main options: equipment financing and equipment leasing. The main difference is that leasing means you rent the equipment for a specific amount of time before returning it. Financing means you make payments that apply towards purchasing the equipment. You will have to choose whichever option is best for your company.
Sometimes, you can obtain a loan based on the amount of money your clients will pay you in the future. This option is called invoice financing. By this process, you use your unpaid invoices as proof to your lender that you will have capital by which to pay off the loan you have been given. You do not pay back your lender until the invoices have been completed and paid. You can also receive a partial amount back.
There are many options you can use to finance your construction company. Consider using one or more of those listed above to get started.