The construction industry is an integral piece of the UK’s economy, employing over three million people – more than 9% of the overall workforce (gov.uk) – and generating billions in revenue each year. However, the industry also faces unique challenges, such as cash flow problems, which can hinder growth and profitability.
Surprisingly, construction accounted for 18.5% of all insolvencies in Great Britain in 2021 (Office for National Statistics).
The typical construction business might require funding for various reasons; from financing equipment purchases to expanding operations, securing a loan is vital for success.
At Aurora Capital, we understand the unique financial requirements of the UK construction industry and the importance of resilient cash flow. Today, we’ll explore the various financing options available to construction businesses, providing expert tips and strategies to help you maximise your borrowing potential.
Choosing the Right Loan
When it comes to financing your construction business, there are a variety of loans available from different lenders. Selecting the right loan is key to achieving growth and success.
Let’s take a look at some of the loans available and their details, pros, and cons:
| Selecting a construction business loan | |
| Growth Guarantee scheme | The GGS is designed to provide UK SMEs with finance from a range of lenders, backed by the government, enabling them to grow. Flexible and accessible, many construction firms used an earlier iteration of the GGS to help navigate the pandemic, for instance. |
| Unsecured business loan | In contrast, unsecured loans do not require collateral, but may have stricter eligibility criteria and higher interest rates. It can be a good option for construction firms that don’t have high-value assets to use as collateral, or don’t want to put them at risk. |
| Asset finance | Asset finance loans are specifically designed to fund the purchase of equipment or machinery for your business. The equipment itself is used as collateral for the loan, which can make it easier to secure funding. However, the interest rates may be higher than other types of loans. |
| Invoice finance | This type of loan allows you to borrow against the value of your outstanding invoices, freeing up capital that is otherwise inaccessible. If your firm has a lot of outstanding invoices and needs a cash flow boost, invoice finance may be a good option. |
| Merchant cash advance | This type of loan provides upfront cash in exchange for a percentage of your future sales processed through card terminals. Card sales are ever-more common in the modern business landscape, meaning that for construction firm owners, a merchant cash advance may be worth a look. |
| Bridging loan | Bridging loans are designed to provide short-term funding for a specific purpose. Bridging loans allow businesses to raise money now with the ability to repay the whole debt back in one lump within 18 months. |
| Revolving credit facility | Revolving credit provides access to a line of capital that you can draw from as needed. It’s a good option if you need flexible funding for ongoing expenses, but may have higher interest rates and fees. |
Use External Funding to Increase Business Revenue
External funding can be a powerful tool for construction business owners looking to increase their revenue. With access to capital, you can invest in new equipment, hire additional staff, or pursue new projects.
For example, you might use an unsecured business loan to bring on some more staff, or use asset finance to purchase new machinery, equipment or vehicle to grow your operation without affecting your own cash flow.
By strategically investing in your business, you can increase your capacity to take on new work and generate more revenue.
How to Maximise Your Borrowing Potential
As a firm owner, the amount your company is able to borrow can vary significantly, depending on a few elements that lenders will look for when determining a funding decision. With a bit of diligent housekeeping, you can ensure your company is positioned to borrow at its maximum potential level.
Here are some tips to help construction firm owners maximise their borrowing potential:
- Maintain a healthy credit score: Keep your personal credit score and business credit scores in good standing by paying your bills on time and avoiding defaulting on existing loans.
Have questions about the state of your credit score or concerned that it may be poor? Contact one of our credit partners, Lightbulb Credit or LoqBox, today.
- Build relationships with lenders: Establish a rapport with lenders who are familiar with the construction industry and can offer competitive rates.
- Keep financial records organised: Keep detailed financial records, including income statements and cash flow statements, to demonstrate the company’s financial stability and creditworthiness.
- Reduce debt-to-income ratio: Minimise outstanding debt and increase income to lower the debt-to-income ratio, which can make the company more attractive to lenders.
Construction & Finance: What Owners Need to Know
Chances are, you’ll be already aware that the UK construction industry is a dynamic, multi-faceted, ever-changing thing. Nothing stays still for long, and there are a number of industry trends and market forces that can affect your chances of a favourable loan.
How well you align your organisation with the following trends – or whether you’re running initiatives at all – can sway how much you’re able to borrow from lenders. For this reason, it’s worth taking a brief look at some top-level market forces from a finance perspective.
- Sustainable building: The trend toward sustainable building practices is growing, with more clients, partners and stakeholders seeking environmentally friendly and energy-efficient solutions.
- Digitalisation: The construction industry is increasingly adopting digital tools and technologies, such as Building Information Modelling (BIM) and project management software, to improve productivity and efficiency.
- Financing options: There are a wide variety of financing options available to construction firms, including traditional bank loans, alternative financing, and government grants.
- Supply chain disruptions: The COVID-19 pandemic has exposed vulnerabilities in global supply chains, leading to shortages of materials and higher prices for construction materials.
Interest Rates for Business Loans
Interest rates for business loans can, of course, vary depending on the lender and the type of loan.
Interest rates can range from extraordinarily low to searingly high; it’s important for business owners to shop around and compare rates to secure the best deal possible.
Working with a business finance broker can be helpful in this regard, as they have access to a wide range of lenders and can negotiate on your behalf to secure optimal repayment rates. With the help of a broker, you can feel confident that you’re getting the best possible deal for your business loan, regardless of whether you choose a traditional bank loan or alternative financing.
How Aurora Capital Helps Construction Businesses
We’ve said it before, and it bears repeating: accessible capital and resilient cash flow are essential for success in the UK construction industry. Whether you’re looking to start a new project or expand your business, securing reliable funding is crucial.
Working with a broker who understands your unique needs and has experience in the construction industry can help you secure the best possible funding options and repayment rates.
As the industry continues to evolve and face new challenges, it’s important to stay informed about the latest trends and financing options available. By prioritising funding and working with Aurora Capital, you can position your construction firm for success and long-term growth.
Contact us now to start building your firm’s future.
