Know Why You Need Financing

Before you start looking at financing options, it’s vital you know why you need the money. Are you looking to invest in new equipment to expand your company and complete larger builds, or do you need a quick influx of cash to tide you over until your next payment? Many contractors (particularly those just starting out) will need money to cover the costs for a build before they get paid. With invoices often delivered after the work is completed, a loan or grant can cover expenses in the meantime.

Clearly define the purpose of your financing before you start searching and it’ll make it a lot easier to spot the right solution when it appears.

1. Government Financing Options

There is some government support available for British businesses, including construction contractors. Occasionally, they’ll offer financing purely to help grow your company, but often the money is given for specific purposes. For example, there are many green initiatives that the government will help finance, as well as projects to improve efficiency.

To learn more about government financing options, we’d recommend keeping an eye on the government website. They regularly update their page with new grants and schemes, so be on the lookout for financing that matches your needs.

2. Home Improvement Financing

Sometimes, you can work together with your client to sort the financing for the project. Home improvement financing is a construction-based loan that treats the contractor as an intermediary, acting between the homeowner and the lender. In this scenario, the homeowner applies for the loan. The money is then delivered directly to you, upfront, to cover the costs of materials and equipment you need to complete the project. The homeowner then pays back the loan directly to the lender.

This is a great way to keep both parties happy. You, the contractor, can start the project quickly without any expense issues, and the client sees work starting quickly without having to pay upfront. It’s an especially good option for homeowners with limited funds, allowing them to access your services easily.

3. Contractor Mortgage

Contractor mortgages are specifically designed for self-employed and freelance individuals. If you work on a contract basis, you can still apply for larger home loans. Use this to buy a property, even as a first-time buyer, or remortgage current homes as a way to gain more funding for your construction business.

Take a look at this helpful Contractor Mortgage Guide which answers some of the most important questions when it comes to getting a mortgage as a contractor including what evidence lenders will want to see depending on the type of work you’re doing and where to look for the right advice.

4. Trade Credit

It’s common in the trade industry for material suppliers to set up a line of credit for contractors. You can then purchase what you need to complete your job, but only pay for the equipment and materials after the client has paid you.

Sometimes, if you know the supplier, this is done with a simple contract or based entirely on trust. However, it can also include credit applications and credit checks, with financial statements needed for the credit to be allowed. If you don’t meet the supplier’s requirements, your application can be denied.

For contractors who are approved, they’ll usually have around 30-60 days to pay for their equipment. After this time, interest will be charged, helping the supplier make additional money from your purchase.

5. Business Credit Cards

Business credit cards are one of the most widely known methods of financing construction. Through a bank or other financial lender, you can apply for a credit card that will give you a limit on how much you can borrow from the bank. You’re then expected to pay this back over time.

Be careful with credit cards, though, as they’re easy to use but can come with high-interest rates! Only spend on a credit card what you know you’ll be able to pay back, using it as a short-term solution to financing issues.

6. Invoice Factoring

For small construction companies and startups, a good solution to cover the financial strain of building is invoice factoring. Rather than waiting for the client to pay and struggling in the meantime, you send the invoice to a factoring company as soon as it’s ready to go. They’ll then pay you between around 75-90% of the invoice amount instantly, giving you the cash you need to cover expenses. When the customer pays to the invoice factoring company, they’ll send over the rest of what you’re owed minus a fee for their service.

However, be aware that you’ll still only be able to cash out once you’ve invoiced for the job. This means that any materials and equipment will have to be paid for by you, but invoice factoring does shorten the time between sending an invoice and receiving your money.

7. Equipment Financing

A pitfall of construction is that to grow your company and take on bigger jobs, you need bigger equipment, and that’s a hefty expense!

Fortunately, there are financing options to help. As with buying a car, you can buy your equipment using a loan that treats whatever you’ve bought as collateral. You won’t always receive 100% of the money you need to buy the equipment, but you should get enough to take the weight off your purchase.

Final Words

Funding a construction company isn’t always simple, but the rewards from running your own business make it well worth it. Hopefully, this article has given you the tips you need to get the money you need. From short-term loans to long-term financing, borrowing is a fantastic way to keep your company growing.