The construction industry is highly competitive, but with the right skillset, employees and investments, your business can thrive. One of the main issues holding back most businesses in the construction industry is having readily available cash to invest in new equipment and premises.
In this article, we take a look at some of the biggest issues faced by the construction industry and how the right business finance can help your company grow at a vastly accelerated rate.
Issues Faced by the Construction Industry
A huge issue faced by construction firms across the UK is cashflow, as once you have completed your project, you’ll find yourself waiting for your customer to pay their invoice. Long payment terms and late payments are commonplace in the construction industry, and these issues inevitably have a knock-on effect to other areas of your business. The delay in payment can cause a multitude of issues for your business, from not being able to pay your workers on time to not paying your bills.
There is also a skills shortage across the construction industry which has been causing issues for several years now. With a growing number of skilled workers retiring and a gap needing to be filled by younger workers, the industry is in a stage of transition. This can be troublesome for construction firms though, with customers inevitably expecting a high-quality finish. There is significant pressure on ensuring that your business hires the right young employees with potential, whilst also having a pool of skilled workers who are able to find the time to train willing young workers.
The final issue faced by construction firms right across the industry, is having the cash flow to purchase equipment vital to day-to-day operations. If you are a construction business there is a chance that costly pieces of equipment may break down, especially if it has some miles on the clock.
In many cases, the initial cost of these pieces of equipment can be substantial, which can prove problematic if you are waiting on payment from your last project. Without the equipment you may be unable to carry out any further work until you are able to raise the funds for the purchase.
Thankfully, for all these issues, there are several fixes, one of which is having the available cash flow to take on the right projects, hiring the right people for your business’ needs and purchasing equipment for your business. Here, we will take a look at the types of finance available to your company and which may be best suited to your particular needs.
Funding Options for Construction Firms
If your construction business is facing any of the issues highlighted earlier in this article, there are several funding options that you could take advantage of. Depending on how your business operates, some of the following funding options may be more applicable than others, but it’s worth exploring all of them to see which suits your business best.
- Invoice Finance – If you find yourself waiting on invoices being paid late by customers on a regular basis, it may be time to consider how invoice finance can help your cash flow problems. Invoice finance is a simple concept, where a lender will advance you a percentage of your invoice before your customer has made payment. Once your application has been accepted, you can expect funds to drop into your account within 24 hours. Depending on a few variables, such as the sector your business works in, proof of debt and whether any contracts are involved, you can expect between 60%-90% of your invoice to be advanced by a lender. Once your customer has paid their invoice, the lender will take their fees and pay the remaining amount of the invoice to you.
- Development Loans – If your business is centred around purchasing properties that need to be renovated, property development finance could be ideal for you. Available for both residential and commercial property development projects, this type of finance will advance a percentage of the purchase price up front, as well as financing the actual refurbishment and build costs. This is ideal for construction firms who are looking to keep their project on budget, who may not have the readily available funds to purchase and renovate a property.
- Business Asset Finance – Business asset finance is ideal if a piece of vital equipment has recently broken down or if you’re just looking to purchase a new piece of equipment, as the lender will make the purchase for you, and you can choose to allow the lender to own the asset, or can make repayments towards owning it yourself.
- Short Term Business Loans – Short term business loans are the most straight forward type of financing available to construction firms, as your company will simply request a set amount of funding, which will be agreed with the lending agent. Following this, the money will be advanced upfront by the lender and repaid over a set period of time by the business. This type of loan is ideal if your company needs access to working capital quickly and has the means to repay the initial loan back over an extended period of time.