We asked Touch Financial Brokerage Manager Alex Kyriacou for advice on how to successfully fund a construction company.
1. Let’s start off by learning a bit about you; what’s your background in business funding?
I have been working in finance for almost ten years now and have established myself as the Brokerage Manager at Touch Financial. I’m not sure whether I would like to call myself an expert per se but I am honoured to have the opportunity to share my experience and knowledge.
2. Why is raising capital so important to construction companies?
Construction companies often receive payment for a project only at certain stages of the project’s completion, or may not receive any payment until once the project is completed in full. This puts a huge demand on cash flow as wages and supplies are required in order to begin and go on with a project – this is cash many construction businesses simply do not have on standby to use.
3. Do you often find construction companies approaching you for funding advice?
As with most businesses looking for funding, construction businesses usually go to their bank by default. Unfortunately, due to the nature of the construction industry, banks are often unwilling to lend at the amount and interest rate feasible for the construction company to operate. More often than not, I come across businesses that have been rejected for a loan and have had no alternative methods of funding for their business.
4. What do you mean by the ‘nature of the construction industry’?
Construction projects are not simple. They can last a significant amount of time compared to other industries. With the size and scale of construction projects, anything can go wrong at any time. This will undoubtedly affect the income stages of the project, usually ending in delays for when the construction firm (and so the lender) receive payment. A further problem is that the debtors of construction companies are usually not of as high quality as with other industries, further reducing the confidence of lenders.
5. So what can a construction company do if they are seeking finance?
I would recommend looking into construction factoring, a form of invoice finance. There are certain lenders that have created specific construction industry packages tailored to the trends of the construction industry. Touch Financial help match construction businesses to lenders who will fund against uncertified applications for payment as well as provide dedicated surveyors for each stage of the process. In my experience of dealing with construction companies, this is often enough to cover the demands of wages, equipment and supply costs of construction projects.