In the land of the free, one thing’s for sure. There will always be building opportunities for contractors who like to hustle. If your dream is to start a small construction business, then there are a number of ways to turn your 3-D designs into reality.

One of the biggest costs you’ll encounter is your equipment. Bulldozers and Bobcats cost way more than a bushel and a peck. The good news is, you have options.

You can focus on equipment financing, a line of credit, a term loan, and more. Below, we’ll highlight some of the crucial elements on how to start a construction company that will lead you down the driveway of success. 

1. Equipment Financing

If it’s starting to look difficult to start up your construction business because the equipment carries a hefty price tag, then you might consider equipment financing. These are (typically) easier to secure than business loans.

Interest rates can fluctuate from six to ten percent. The stipulations vary as well. You might find that most lenders only agree to pay for 80% or 90% of the cost. So, you might have to come up with a portion of the price tag.

As for collateral, the equipment usually serves as the collateral, so it’s important to stay current on your payments. Those details aside, you’re looking at a potentially long-term equipment loan, which means nice interest rates and, we hope, a profitable monthly margin.

2. Line of Credit

This is a great way to help with cash flow during the slower seasons. A good ol’ fashioned line of credit can be used for a multiplicity of purposes; you’re not strictly tied to equipment or real estate.

But, here’s the best part of the deal. You only pay interest back on the amount you use. For example, if you qualify for a $75,000 line of credit but only use $30,000, you’ll only be hit with interest charges on the $30,000.

So, you’ll end up drawing and repaying funds only as you need them. Of course, you just can’t exceed your credit limit. Think of it like a credit card (with a far better interest rate). In fact, it’s common for lenders to allow borrowers to repay your balance early in order to reduce those interest charges. 

3. Factoring

Okay. Factoring gets a tiny bit more complicated, but don’t get overwhelmed. It’s a common practice which means if other businesses have figured it out, so will you.

Here’s the long and short of it: you can sell your pending invoices to a third party (a factor) who will then advance most of the invoice amount (usually anywhere from 70% – 90%). So, the factor sends the business the money, minus a transaction fee. 

Transaction fee aside, invoice factoring is a great way for new businesses to get off the ground. It’s a heavy burden when you’re completing jobs but having to wait, say, 20 to 60 days for payment.

Factoring allows you to receive funds – often within a matter of days – as you press forward into new ventures. Better yet, factoring allows you to continue offering net terms to your customers. They’ll enjoy the flexibility you’re able to offer them because you know your funds are already secured.

4. Business Cash Advance

A business cash advance is slightly tricky for the lender and potentially profitable for the borrower. It’s tricky for the lender because repayments are dependent upon the borrower securing business. It’s potentially profitable for the borrower because the cash can come fast. If you’re having trouble securing a business loan from a traditional lender, like a bank, then a cash advance may be in the cards for you. 

Your construction business can borrow the cash from a lender and the lender is repaid as you earn business from customers. These advances are usually repaid within a year which, we’ll be honest, means they tend to come with higher interest rates. But, if you’re a new business looking for quick funding, this is worth looking into.

5. Term Loan

Here we are at the end with your most traditional option – a bank loan or a term loan. Here, you’ll find pretty standard details. The loan will be fixed for a certain amount of time (a term) and the interest rate should be fixed, too. 

The reason all these other viable options have cropped up, such as lines of credit and factoring, is because, when the recession hit in 2008, many banks rolled up their carpets and became tight-fisted about business loans. Here, banks won’t be flippant about your credit-worthiness. 

The nice thing, though, is that term loans can help you secure major requirements within your business, such as the warehouse, storage facility, or other real estate requirements. And, again, things are pretty well-defined here. You’re looking at a set maturity date by which you must repay the loan.

Funding Options for Your Small Construction Business

And there you have it! If the idea of starting a small construction business has been swirling around in your dreams, then start framing up! You have a slew of options, depending on how much financing you’ll require and what you’re looking to fund.

Here at Capital Collab, we offer term loans, lines of credit, cash advances, invoice financing, SBA loans, and more. No matter which source of funding you’re interested in, you can hop online and see if you qualify in no more than 60 seconds. From there, we’ll be able to line you up with the best funding option to help you start building today.