Maintaining a positive cash flow can be challenging for any business, but its perennial payment structure makes the construction industry especially vulnerable to this problem. Needless to say, a stable cash flow is critical to the construction industry. After all, businesses need a regular supply of cash to keep their projects running forward and pay for raw materials, labour, and other overhead expenses.
But delayed projects, partial payments, or the very nature of payment terms in the construction industry can lead to overdue receivables. Not to mention, most construction businesses front much of their project's cost even before they start. This situation is not ideal and can lead to serious cash flow issues that can be potentially damaging to your business.
Construction finance is a lucrative option for construction businesses to meet their funding needs between the completion of the project and settling account receivable, ease cash flow management, and fund large projects hassle-free.
Here's how construction finance can help your businesses solve cash flow issues.
1. Construction finance can help you front the project costs
Many businesses struggle to get enough payment upfront to cover the initial costs of their projects. And so, having to front the total cost of the entire project can be a challenging situation.
Construction finance can help businesses acquire enough capital to front the project costs and kick start their projects instantly. With the funds readily available, construction businesses can procure material or invest in the latest equipment without affecting their cash flow.
2. It can help you tackle progress payments
The construction industry is often characterised by partial payments or lengthy payment terms. Both these issues can hold up your company’s cash flow. Cash filters down from the property owners or lenders to subcontractors and then to suppliers. And with every delay at the top of the chain, businesses might struggle to pay their employees and suppliers.
Opting for construction finance can help you bridge the gaps till the final payment is received. With everyday expenses handled well, businesses can ensure timely delivery of projects without any hassles.
3. You can keep your investments locked in fixed assets
Fixed assets such as vehicles and the latest manufacturing equipment are necessary investments for any construction business. After all, it can help your company stay up-to-date and enhance your overall business performance. But businesses often make the mistake of covering these long-term investments with short-term funds. By doing so, they end up hurting their cash flow.
Here, availing of construction finance to purchase machinery and equipment can free up cash reserves to cover essential costs such as bills and overhead expenses.
4. It helps take care of payroll expenses
Construction businesses are a part of a labour-intensive industry, and the financial stress of paying the workers regularly can strain the company's cash flow position. Delayed customer payments can further freeze cash reserves, and businesses are left struggling to pay their existing workers or hire new staff.
Construction financing allows businesses to introduce enough cash into their business so that they can easily pay salaries to their employees. By fulfilling their working capital needs, businesses don't have to wait around till the end of the project to incentivise employees and can retain the staff more efficiently.
How to avail of construction finance for your business
Today, you can avail of construction finance online in just a few steps, anytime, anywhere. Typically, you need to do the following:
- Submit all your invoices to the construction finance lender of your choice.
- Then, the financier will assess your overall creditworthiness. This depends on several factors, such as your credit score, business credit score, business age, revenue, financial history, assets your company owns, and more. Some lenders may even assess the creditworthiness of your suppliers. So, if most of your suppliers have good credit, it will make it easier for you to avail of construction finance. Note that this vetting process may also vary among lenders.
- Depending on the total amount requested, your lender might ask for further documents such as your bank statements, record books, profit and loss statements, and legal documents. They will verify the authenticity of your construction business prior to approving funds.
- Once your lender determines your creditworthiness, they may request a deposit before giving you the amount.
The bottom line
Construction businesses can experience unique cash flow challenges that make it challenging to outperform the competition. With slow payments, late payments, a high payroll burden, and delayed invoicing, operating in the construction industry can be difficult. Fortunately, affordable construction finance can help ease their worries.
For convenient construction finance solutions, turn to Tata Capital! With lucrative interest rates and customized repayment options, our bespoke solutions will cater to all your business needs.
Visit our website to learn more about our offerings, talk to a consultant, and apply today.
16 August 2022
4 mins read
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