It can be a very tricky prospect for construction contractors to arrange for financing the purchase of new construction equipment. Incoming revenues are often difficult to anticipate, because of slow-paying customers, and that means you will generally have to arrange for alternative financing. Here are some possibilities you can consider.
These are typically short-term loans which have the specific purpose of funding construction or possibly for renovating a property. In order to qualify for a construction loan, you’ll need a good credit rating, you’ll need sound building plans, and you’ll need a favorable appraisal on the worth of any property you’re planning to work with. Then you’ll also have to come up with somewhere between 20% and 25% of the total project cost yourself.
While the SBA itself does not issue loans, it does guarantee a significant portion of the loan, so that you’ll be more likely to be approved by a traditional lender. You’ll have to apply with a bank which works with the Small Business Administration, and you’ll have to be approved under SBA guidelines, but this is a very worthwhile loan which you can take up to 10 years to pay off.
Contractor Line of Credit
When you apply for a business line of credit, it’s similar to the process you have to go through for applying for any other line of credit. A lender will review your ability to repay as well as your business rating, and if approved, you’ll then have access to a revolving line of credit. You’ll only have to pay interest on the amount that you use, and once you’ve repaid any money you draw out, you’ll have access to the original balance once again.
Typically, equipment financing can be arranged for the purchase of equipment which has a long life expectancy, such as heavy machinery. Essentially like any other kind of bank loan, equipment loans are specifically used for the purchase of large pieces of equipment such as tractors, cranes, and bulldozers.
Invoice Factoring or Financing
When you arrange for invoice factoring or invoice financing, you’ll be able to get an upfront amount of cash from a lender in exchange for invoices which your customers have not yet paid. The amount you get from a financing company will generally be in the range of 70% to 90% of the face value of the invoices, and a financing fee will then be applied.
Need capital to purchase construction equipment?
Sometimes all it takes for a business to get to the next level is to acquire a critical piece of equipment which can improve on daily operations. If you need financing to make that critical equipment purchase, contact us at Rotay Capital Finance, so we can discuss some options.