Cash flow is very important for any business, including the construction sector, where upfront payments are common, margins are thin, and payment terms can be lengthy. Today we will look at three different financing options available for your construction business. These are debt, equity, and invoice financing.
Debt – Fast, But Pricey and Inflexible
Debt, like traditional bank loans or credit cards, can provide quick access to funds. However, it comes with some drawbacks.
Challenges in Obtaining
Banks often lend to those who don’t need it, making securing a loan challenging.
While banks offer lower interest rates, credit card interest can be expensive and long lasting.
You pay interest on the entire borrowed amount, regardless of your actual usage, which can lead to financial strain during downturns.
Equity – Slow and Sacrifices Control
Selling a portion of your business to an investor in exchange for capital might seem appealing, but it has downsides too.
Finding suitable investors can be a lengthy process, requiring due diligence and negotiations
Loss of Control
Significant equity investments mean giving up a substantial part of your company and potential future growth.
Invoice Financing – The Ideal Solution
Invoice financing often times combines the best of both worlds.
Utilizing Unpaid Invoices
In construction, clients often take more than 80 days to pay invoices. Invoice finance turns these unpaid bills into an asset by providing immediate access to funds against them.
Pay only for what you need, as interest is calculated per invoice.
Minimal paperwork and quick loan applications mean you can access cash on the same day.
Your creditworthiness is based on the general contractors’ balance sheets, enabling you to access credit at their rates.
Invoice financing isn’t a liability on your balance sheet, making it ideal for funding your entire turnover without risking your company.
Upfront interest and fees ensure you have a clear view of your expected cash flows, aiding in planning and budgeting.