Business Loans are also available to those within the Construction sector. Loans can take shape in multiple forms, tailored to suit and aid your business as it grows. A Business Loan in its most traditional form works to inject working capital into the business, allowing you to have a large amount of funds readily available. This can be used for any business use, such as: purchasing a new asset, or equipment; retaining a high level of working capital, ensuring payments to suppliers & your staff are never missed; or any other expenses your business may make. Traditional Business Loans can either be Secured, or Unsecured, with different criteria and costs being involved in the two.
Unsecured Loans, as you would imagine, are arranged without any security being taken on a property or asset within the business. Unsecured business loans often require a Personal Guarantee from the Company Director/Shareholder. This means that for any reason the business defaults on the loan facility, the director will personally guarantee to pay off the funds. Plenty of lenders offer unsecured loans, with upwards of £100,000 being available. Due to there being no security involved, a strong business profile is necessary to be eligible for a loan of this kind of loan.
Secured Loans work very similarly to Unsecured Loans. They are the exact same product, except the funds borrowed are secured against a viable asset. This could be property, vehicles, machinery, or any other asset owned by the business shareholder (or director) which has available equity for security to be taken. Secured Loans typically have lower entry criteria, as the security is put in place to cover the lender’s risk of the business defaulting on the facility. Secured Loans are typically taken out against the property, which will lead to a charge being placed on a non-business asset. On the other hand, a facility can be arranged that allows you to free up capital tied up in business assets, such as vehicles, machinery & plant.
The other common form of loan amongst Construction companies is Asset Finance. This form of loan is tailored to your business, specifically to allow for the purchase of an asset. Vehicles, plant, and equipment can be very expensive purchases for some businesses, and a facility could help you acquire the asset needed. Specifically within the Construction sector, plant and vehicles can be large and very costly, but can allow you to access work that could be vital to your future business growth. An Asset Finance facility is perfect for those in need of retaining working capital whilst also acquiring a new asset for the business. It will split the cost of the asset into smaller monthly repayments (subject to interest), rather than paying a lump sum on day one.
Development Finance is used to finance the costs of building brand-new property. These costs include such things as the land costs (which can be up to 70% funded) and the building costs (which can be up to 100% funded). It is important to note that the loan amount cannot exceed 70% of the total gross development value.
These types of facilities can vary largely in the total sum. For larger projects, seven figure sums can be funded for land and building costs. This will work similarly to a Bridging Loan, where a sum of money will be funded to the client, to be spent on developing property. This will then be sold on for a profit, and the capital of the loan will be paid back, plus interest.
For example, if you purchase a plot of land for £200,00 and plan to build 5 houses upon it, a ground-up facility could suit your venture. With an estimated value of £200,000 per property, and a build cost of £100,000 per property, each house built and sold will generate £100,00 profit. The difficulty in this is acquiring the starting funds to build the property. This is where a facility can be put in place and cover this cost.
£200,000 for the land purchase + £500,000 (£100,000 x 5 houses) would equal a total cost of £700,000 for the build. After sales of £200,000 per property, you would have a total of £1,000,000 (£200,000 x 5 houses), leaving you with a £300,000 profit.
Development Finance can raise up to 70% of your land purchase, and the total build cost, which would be paid out to you in stages as the build progresses. This will be repaid with interest, but will still leave large profits in the hands of your business.
Through our expert consultants, and our panel of over 250 lenders, we have acquired plenty of Construction companies the funding facility they have needed.