The housing bubble burst and subsequent recession of 2008 put many construction companies out of business. Since that time, the real estate and construction markets have slowly regained momentum and welcomed new construction businesses back into the industry. Starting a construction business requires a detailed business plan, potential leads for new clients and funding. Existing construction companies also need to secure funding to cover equipment purchases, salaries and overhead costs.
Understand the Industry
Getting funding for a construction company starts with understanding the ins and outs of the industry. A construction company must pay for materials, labor and other incidentals before a project starts, yet it doesn't receive full payment until the project is complete. This cash flow shortfall is one major reason construction companies need funding. The construction industry depends heavily on the current economy; if the economy is down, people are not building and construction companies are not getting any business. And a construction company works project to project, with no guaranteed or stable revenues. To many lenders, this instability is a strike against the construction company.
Find the Right Lender
Finding a lender or company that specializes in loans for construction companies and that understands the construction business can expedite the loan process. Globelend Capital, for example, specializes in construction funding and allows companies to borrow cash using future revenues as collateral. 1st Commercial Credit and eSmallBusinessLoan work frequently with construction companies, "purchasing" a specific amount of a company's future sales and requiring the company to pay the money back each month from those sales. These cash advance and accounts receivable loans are ideal for construction companies, because they provide quick, upfront cash and do business with companies that have bad credit, tax liens or judgments. These companies often approve loan applications quickly, without much of the paperwork banks and other lenders require.
Go Through Application Process
When applying for the loan, the construction company owner should specify what the money will be used for, whether that's buying equipment, increasing surety bonds or paying salaries. Being as specific as possible helps the loan officer understand why the money is needed and could make him more likely to approve the loan. Lenders typically ask for basic information about the company, such as who owns it and where it's based, and want to review several months' worth of bank and credit card statements.
Construction equipment is one of the biggest expenses for a business that builds things. Equipment leasing companies offer an option for a construction company that might not have the funds for such large capital expenses -- especially as the business is starting out. Rather than having to pay large amounts of money in advance to purchase equipment, a leasing company allows the construction company to pay small amounts over time to secure the equipment it needs.
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