How Construction Businesses That Can’t Borrow From a Bank Should Finance Projects

How Construction Businesses That Can’t Borrow From a Bank Should Finance Projects

What's the main difference between Mechanical and Civil Engineers?

Mechanical Engineers build weapons, Civil Engineers build targets

Running a construction business of your own is a capital-intensive process. While business owners do rely on human labor, a majority of all processes are managed through capital goods and resources. Business owners have to purchase equipment, repair it on a regular basis, rent heavy machinery, hire employees and market their services to get customers and money. These are just a few of the services they indulge in on a regular basis.

Makes us wonder just how much Bob the builder was actually spending on maintaining his fancy fleet of cranes and bulldozers.

While a consistent cash flow is important for almost all businesses, the construction industry is starved even more for it. Everything can come to a halt if things don’t go according to plan and the builder is unable to generate the required funds in time. While self-financing is the ideal option, it isn’t pragmatic for builders who don’t own oil wells up South or a gushing family heritage for that matter.

If you’re a contemporary entrepreneur in the construction business, you are just as starved for cash as the next person. This is the exact reason why many construction investors and business owners turn to financing options to help launch their business. Even if your construction firm is well established, you will still require rolling chunks of cash every time you start on a new project.

The quest for cash and financing is a never ending process for builders and investors in the construction industry. In short, if you are a builder in the construction industry, it’s never a question of ‘if’ you will require financing eventually, but a question of ‘when’.

We can break down the costs most construction experts see during their tenure in the following categories:

1. Hard Costs: These are all direct costs related to material, machinery and labor.

2. Land Costs: Obviously, you will have to acquire some land before starting construction on it. You can’t just pick up a shovel and start digging random spaces. The money spent towards acquiring land can be a lot, and is known as a ‘soft cost’.

3. Other Soft Costs: There are numerous other soft costs that construction experts witness in the process:

a. Architectural design

b. Permitting

c. Engineering

d. Taxes

e. Construction testing, inspections, and bonding

f. Insurance liability for business risks, contingency policy, and title policy

g. Commission fee for broker’s and developer’s fee for developers

h. Interest on construction payments

i. Legal and appraisal fees

4. Contingency Reserve: You are also required to keep a running reserve fund to make interest payments on your loan and to keep your project liquid. Liquidity is an important part of running a construction business. Many lenders also require you to maintain a reserve fund, this is for regular payments of interest on time. Most lenders ask for a reserve to be maintained at 5 percent of soft costs.

You should preferably consider all these costs before looking for a loan. A construction loan can be used for the materials in the building, the fixtures you use, and the equipment you use for the construction.

While lending from a bank is the ideal option for most construction businesses and investors, it isn’t an option they can possibly consider at times. Banks have developed strict screening policies currently and end up rejecting more applications than they accept.

Reasons Why Banks Don’t Lend Money to Certain Investors and Businesses

As we mentioned above, you shouldn’t put all your hopes on banks for external financing. Gone are the glory days of the 20th Century when banks would jump at every opportunity to finance a construction project. Construction is now more widespread than it ever was before, and while banks still are eager to invest in the industry, the number of businesses and investors looking for money has shot up.

Banks avoid lending money to certain businesses and investors because of the following reasons:

Limited Collateral

Banks require proof of the fact that you will repay their loan back in time. It might sound convenient for you to declare bankruptcy if you’re unable to pay back the loan, but banks go through an entire shake-up whenever this happens. Hence, banks require proof of physical property, which would be handed over to

them as collateral for the loan application to be accepted. The collateral could be in the form of your office premises or some other business asset. Inability to provide the perfect collateral, matching your loan amount, will lead to rejection.

We don’t usually boast about our finances

But our credit card company calls us every day to tell us our balance is outstanding

Having multiple lines of credit before you apply for a loan with a bank will most definitely kill your chances of getting a loan. If you are buried in different lines of credit, then no bank would like to work with you. In the off case that your application is approved, the bank or lender will give you a steep interest rate. Much beyond what you can possibly afford.

Poor Credit Score

Ah, the credit rating! Your enemy number one and the biggest hurdle between you and the loan you require from your bank! Your credit score is an independent rating that certifies your ability to pay back loans. Banks and almost all other lenders today consider your credit score before they can think about handing you a loan.

Your chances of getting a bank loan are weak if you:

? Don’t know what a credit score is (it’s best you just drop that application)

? Haven’t checked up on your credit score for some time

? Know for a fact that you have a poor credit score (keep reading, we have other options for you)

Risky Market Conditions

Construction is one of the most favored industries by banks and financial institutions. However, all this favoritism amounts to nothing if the market conditions are risky and aren’t in line with what they’d expect or prefer.

Other Loan Options for Construction Businesses and Investors

As we studied in detail above, bank loans can be a bit hard to generate for some investors and businesses. This comes down to a number of different reasons and possible facts.

Now, since lending through a bank is not a convenient option, what other possible financing avenues or opportunities can you explore? Let us look at your options here:

Equipment Financing

Equipment financing is a possible source of finance you can go for to buy expensive equipments through external financing. Obtaining the desired equipment is one of the many reasons investors and businesses go out looking for a loan in the first place. As it turns out, you can now enjoy specific financing plans for your equipment, so you don’t have to go running around looking for external sources of finance.

There is an enormous level of variation available with equipment financing. Businesses today can finance almost all types of equipment through these financing plans.

Lending Exchanges

Lending exchanges, like C-Loans, act as vehicles helping bridge the gap between investors and businesses within the construction sector. You enter the details of your project on the platform and get a detailed investment plan from potential investors. This approach is known to work because lenders are trying to find profitable investment opportunities around them.

Get Loans From Friends and Family

Finally, if you are a small-scale investor in the construction business, you can start by getting a small-scale loan from friends and family members. Make sure that you document the loan process and also create an agreement. You do not want a family member asking for their loaned amount before it actually matures. An agreement can document the entire process and can lead to better results for both of you.

Access Capital Through Publicly Traded Stock

All public stocks or shares you hold today can be considered an acceptable form of collateral today. Gone are the days when you would be able to get a loan only by using your property or other real estate holdings as collateral. Now, due to the changing market dynamics, you can also actualize your public stocks and get capital through them.

Obviously one might think that if you have public stocks, you can almost always trade them for cash and use that cash for your business. But we don’t believe in selling your public stock holdings just yet. When you use your public stocks as collateral for a loan, you ensure that you get to enjoy all the spikes in stock prices during the future. All future earnings on the stock will be yours once you repay the amount.

Understanding Non-Recourse Loans

A non-recourse loan can be beneficial for you in the long run. A public stock loan taken against your stock holdings today is a non-recourse loan that does not force obligation of paying back the loan on you. For those who haven’t heard this term before, a non-recourse loan is basically a form of financing secured through the use of collateral.

Borrowers can get their required financing after they ensure the provision of collateral – public stock loans in this case – to the lender. In any case, if the borrower ends up defaulting on the loaned amount, they will not be considered responsible for the repayment. The lender can head to the stock markets and sell these non-US public stocks in the open market to get their amount back. The borrower will not be responsible if the stocks sell for less than the loaned amount.

How Can You Benefit From Leveraging Your Public Stocks for a Loan?

We can now tell that public stock loans are ideal for investors and businesses in the construction business. They take away responsibility and ensure that you get to enjoy the benefits of stocks once you pay back the loan.

https://liquidpublicstock.com/ is a renowned provider that can help you secure your non-US public stocks and get a cash loan in return. The benefits investors and businesses in the construction industry get from working with them are:

• You do not have to go through the hassle of liquidating your entire portfolio of stocks.
• You can get the money you require without losing out on stock benefits.
• No personal or business guarantee is required.
• You gain access to finance faster than before.
• The approval process is faster and usually takes between 2 to 4 weeks.
• No interest is required for the first three years of the loan.
• Interest rates for the remaining period are under 3.5 percent.
• No fee is required for financing.
• Loan terms vary from 1 year to 7 years.
• All future dividends and stock increases are yours to keep.
• No credit review.

• Eligible securities include credit-worthy bonds, public stocks, ETFs, penny stocks, and other credit-worthy securities. Head over to them today and get the capital you require for investing in your construction business.

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