Construction Project FinancePublished on 15th August 2019 2019-08-15T11:00:00+00:00
Despite current challenges and thanks to an ever-growing demand for housing and commercial workspaces, the UK construction industry is keeping its head above water. That means that there still many opportunities to take advantage of, providing you have the means to do so. Yet, whether you’re looking to take on a new contract or complete an existing project, one way of gaining the upper hand is by applying for Construction Projection Finance. Offering you a variety of ways in which to raise the capital your business requires, Construction Project Finance is an invaluable tool enabling you to prepare for new contracts and support the progression of an outstanding project. So if your construction business needs access to additional capital, here’s what you need to know about Construction Project Finance.
What can Construction Project Finance be used for?
For many construction firms, construction project finance offers your business an essential pillar of support. It enables you to raise capital for a wide range of purposes to support any construction project - whether you’re looking to prepare for a new contract or support an existing project - and could even be used to hire contractors, support wages, purchase supplies, acquire additional equipment or even release equity held within any unpaid business-to-business (B2B) invoice.
What do I need to qualify for Construction Project Finance?
Another reason why so many construction firms request the support of Construction Project Finance is that it’s suitable for a wide variety of purposes, even if you possess an adverse credit rating. However, you need to be aware that the application process does vary depending on the type of finance product you’re considering. Nevertheless, in order to qualify for Construction Project Finance the three areas you need to take into account include:
- Credit Rating - Lenders will always carry out the necessary checks, including a review of your credit profile. So although it may not be used against you, they will usually request permission to assess your credit profile, incorporating into their checks whether you have any past or outstanding CCJs accelerated payment notices (APNs), outstanding debt (e.g. credit card debt) and history of resolving debt on time. As such, if there are any issues, you need to be aware that it may affect how much interest you’re charged.
- Security - Depending on whether the agreement is Secured or Unsecured, you may need to present lenders with collateral in the form of unencumbered assets such as equipment, machinery or vehicles. Plus, depending on the product, you could even use the capital held within unpaid business-to-business (B2B) invoices as collateral.
- Documentation - In addition, you also need to consider what you’ll need to present with your application, which varies depending on the product in question. So although this should be outlined in the documents they’ll present in response to your enquiry, they’ll often request anything from proof of your identity, past and recent bank statement, profit and loss statements, cash flow forecasts, business-to-business invoices to collateral documentation.
What Construction Project Finance solutions can I apply for?
Finally, another reason for why Construction Projection Finance is so popular with the construction sector is that it provides access to a number of business finance solutions, granting you a variety of way to raise the capital you need. So depending on how your business operates and how you intend to raise the necessary fund to achieve your goals, you could apply for Overdraft Replacement, Invoice Finance or Asset Refinance.
Overdraft Replacement is an invaluable tool for many construction firms who are working an existing construction project but need additional funds to support each stage in its progression. As such, Overdraft Replacement could be used to replenish construction supplies, repair/replace damaged equipment, pay staff wages or even hire contractors. It works by granting your business a Line-of-Credit, providing instant access to an allowance based upon your past income. In addition, you’re under no obligation to withdraw any of the funds that are available. But should you choose to do so, anything that you’ve taken will need to be fully repaid within 30 - 90 days (depending on the agreement) and charged interest. Once repaid, you’ll instantly regain access to allowance and will be able to withdraw and repay funds on a revolving cycle - much like a credit card facility.
On the other hand, if you’re looking to support an existing project or prepare for a new contract, you could raise the capital you need by instead applying for Invoice. This involves releasing up to 90% of the capital contained within any unpaid business-to-business (B2B) invoice worth in excess of £5,000. However, there are two types of Invoice Finance products available that you need to be aware of - Factoring and Discounting.
- Factoring: In order to qualify, your construction firm must be able to generate an annual turnover of at least £25,000, whilst also maintaining up-to-date business ledgers and demonstrate effective credit control procedures. But, it’s worth noting that Factoring does give you the option allowing lenders to pursue the debtor on your behalf, saving you time. Once the debtor (customer) has fully repaid what they owe in the invoice, the lender will release a balance (e.g. the remaining 10%, minus costs and fees). Plus, some lenders may also offer you Bad Debt Protection as standard, safeguarding your business in the event the debtor (customer) doesn’t resolve what they owe.
- Discounting: On the other hand, Discounting requires your construction firm to possess an annual turnover of at least £100,000, whilst also maintain up-to-date ledgers and reliable credit control procedures. But instead of the debtor paying your firm, they’ll, instead, pay into a lender-controlled facility. When the invoice has been fully repaid, the lender will then release a balance to your business (e.g. the remaining 10%, minus costs and fees).
Finally, if your construction firm owns any unencumbered assets (equipment, machinery or vehicles) that aren’t fixed into the structure of your premises, applying for Asset Refinance could enable you to release up to 100% of the equity they contain in order to generate a lump sum. This lump sum is also not subject to any usage restrictions or credit limits other than what the lender is willing, or able, to provide. In addition, this finance solution also offers terms lasting up to 5 years, during which you're required to make Fixed Monthly Repayments, plus interest. Although this is a useful way of generating funds, you need to be aware that Asset Refinance is a form of secured asset-based lending. Therefore, if your business falls behind in the repayment scheme and defaults, the lender will gain the right to repossess these assets.
Need help supporting your construction firm?
For any construction firm to succeed, being able to secure new contracts and complete key projects is essential. However, the construction sector isn’t an easy environment and you could run into any number of issues that could cause you to go over budget. But rather than dip into your own savings, you could raise the capital your construction firm needs by applying for Construction Project Finance. All you need to do is choose a suitable business finance solution that will offer you all the support that’s required.
At Rangewell, we’re an Access to Finance specialist who’s mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you are looking to gain access to additional funds and support key construction projects, apply for Construction Project Finance today or find out more with Rangewell.
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