The conventional understanding that most people have about getting a loan is that it needs to be secured by putting up collateral. This can often be in the form of real estate collateral such as a residential or business property, or something your business owns such as inventory. However, small business owners may have little or no collateral at all to offer. This doesn’t mean that small business loans are off limits to them.
What they can get is an unsecured business line of credit which requires no collateral to be put up. An unsecured business line of credit in construction is not all that different from a regular revolving line of credit whereby you’re approved for the maximum amount and you can choose how much or how little to withdraw against that limit when need be. Think of it as a business credit card account. You can only borrow up to your account limit and provided that you’re not falling behind on your payments, you’ll be able to borrow against the same limit in the future as well.
Starting Up a Construction Business from Scratch
Banks will be leery of approving financing for a start-up construction company that doesn’t appear to have a solid business plan or a track record of completing projects. All companies have to start somewhere, billion-dollar construction empires don’t just appear out of thin air.
This is why unsecured financing provides a vital business advantage to companies in the construction industry. Even start-ups can get access to a credit limit which they can borrow against to get the ball rolling on their projects.
Acquiring the Necessary Equipment and Machinery
The equipment and machinery that you require will depend upon the type of construction work that your company does. Either way, a substantial amount of money is required to acquire them. This is where the line of credit will come in handy. It will enable the business to quickly acquire the tools it needs to start its business which will lead to revenues and profits.
Being Able to Bid on New Jobs
A construction business can’t bring in any money unless it’s actually building something. It needs to win jobs and there’s often a bidding process that companies have to go through. There are costs involved even in just submitting bids. Having access to a line of credit will help in this part of the process as well.
Paying Suppliers for Materials
Suppliers need to be paid for the materials that they provide. A construction company can’t work unless it has the required supplies. They often don’t accept credit cards so being able to get a cash advance against the credit limit helps meet these obligations.
Dispensing Employee Salaries on Time
Making sure your employees are paid on time is one of the biggest responsibilities that your business has. They won’t stick around if they’re not paid and the company will no longer be able to conduct business in their absence. An unsecured business loan provides swift access to funds that can be used to meet obligations to employees in the event of a cash flow crunch.
Meeting Working Capital Needs on Short Notice
An unsecured business line of credit can be useful for a construction business. People who work in this industry are well aware that they always require adequate working capital to ensure that they can meet the costs of finishing projects even when sales are slow. Cash flow problems can be exacerbated if your company is involved in multiple projects at the same time.
Short-term, unsecured financing can be very helpful in allowing the business to manage cash flow problems and complete its projects. An unfinished job will make no money for a construction business after all.
Making Additional Investments in Your Business
It can be difficult to realize profits on completed projects if your business also has multiple jobs that still need to be completed. Those projects can be a drain on the company’s resources and also prevents it from reinvesting money into the business. This financial hurdle can also be overcome with external funding.
Fulfilling Tax Obligations
Companies can’t avoid their tax obligations. A company with cash flow problems can ill-afford a hefty tax bill. It’s always a good idea to be fully compliant with all tax obligations for your business. Even when cash is tight, external financing can be used to fulfill these obligations.
Meeting Unexpected Expenses
There can often be unexpected expenses for your business due to cost overruns or, if you’re involved in construction activities overseas, even foreign exchange risk. These unexpected expenses that throw caution to the wind can be met by drawing funds against the credit limit.
Covering Compliance and Legal Costs
A business may be required to pay certain compliance costs and will also need to be covered from a legal standpoint. Both of these things can be a drain on finances even though they’re an essential part of running a business.
Checking for pre-approval will not affect your credit score.