5 Ways to Finance A Commercial Construction Project
In order to kick-start any commercial construction project, it is essential to understand the multitude of issues and procedures that follow with it. Whether it is to cater to raw materials supplies, hire employees or market your services every entity must have access to a consistent cash flow system. Although, many opt for self-financing, this step is particularly difficult for small and start up businesses in the industry. Small sized companies are often prone to more challenges within the financial aspect of the project, as some may not yet have a department dealing specifically with finances.
Some initial pointers for small sized business include maintained a well-designed business plan along with pre-construction planning, and a general overview of all construction costs. Construction costs are further categorized into hard costs (materials, labor, etc.) and soft costs (which involve taxes, on-going expenses as well as, maintenance and insurance expenses). These are expenses that often take a large portion of a budget. Another aspect that every business must consider is: their contingency plan. Like any other sector, it is helpful to prepare for some unexpected added expenses in the case that things fall out of plan. In fact many lenders require an entity to have contingency funds in place. With all things in mind, it may also be useful to consider keeping.
5 Ways to Finance your Commercial Construction project:
1- Equipment Financing:
The starting point of any project execution involves obtaining equipment. Many start up and small businesses often opt for outside financing when it comes to obtaining physical assets for the project such as heavy machinery and other construction equipment. Moreover, many businesses also opt for also leasing out equipment or even renting on annual or monthly payments. Depending on project requirements, one can acquire different variations when it comes equipment financing.
2- Financial Lending:
Small business start up loans or financial lending is currently the most popular and quickest option for obtaining funding for projects. One of the inarguably positive aspects of this type of funding option is the fact that access to funds can be obtained within a matter of days. This can further helpful for covering weekly expenses, or unexpected costs. However, in order to opt for small business loans, one must also possess an excellent credit record. Furthermore, lenders also require detailed plans and project planning in order to proceed with loan approval. This can be quite a hefty procedure for entities that are quite new to the industry.
3- Crowd funding:
Crowdfunding is a method of obtaining financial resources from a group of small investors for a specific project. This is a popular method found in almost all sectors, with platforms such as GoFundMe and KickStarter the possibilities are endless. There are many types of crowdfunding including peer-to-peer lending which would essentially consist of lenders other than banks who are willing to pool their resources through online platforms. Property crowdfunding is also an option in acquiring a piece of land or property, wherein investors each get a contributed share of that property.
4- Bank and SME loans:
Bank and SME loans are another popular option for financing construction ventures. They are often provided with flexible terms, low interest rates- which happen to be interest only during the project. These are often option for more established entities with a working capital and a great credit record. Depending on eligibility criterion different organizations can opt for what best suits the project at hand. However, it is important to keep in mind, that short term loans are a riskier option as it is required to pay them in full at the end of the project period.
5- Acquisition and Development Loan:
They type of loans are often used for financing developing raw land or for simply making improvements on a developed piece of lank. These loans essentially cover the costs of purchasing property as well as any expenses involved in making property improvements. However, they require a certain amount of down payment, along with collateral such as an existing property. Full financing may not be offered in all cases, therefore several factors need to be considered before moving forward with a development loan such as the location, local economy and m