A Guide to Construction Finance

Construction finance is a broad term that covers a variety of loans, credit facilities and other financial products designed to support the construction industry with developments and projects.

The most common types of construction industry finance are:

• Asset finance
• Vat and Tax Finance
• Bridging Finance
• Cash Flow Finance
• Development Finance
• Invoice Finance

This is a just a small selection of business loan types that can help you grow, expand and push your business to the next level.

Finance Type	Average Terms	Average Lending Amounts	Notes
Asset Finance	3 months – 7 years	80-90% of asset value (100% in some cases)	Amounts vary depending on type of asset and credit
Vat and Tax Finance	3 months – 1 year	£2,000 minimum (no max but credit dependant)	Amounts vary based upon HMRC bill amount, company profile, credit history and credit worthiness
Bridging Finance	3 months – 1 year (can be rolled over after 1 year)	Between 70% & 80% of property/land used as security	Amounts vary depending on type of property/land
Cash Flow Finance	3 months – 5 years	£5,000 - £750,000	Amounts vary based upon company profile, credit history and credit worthiness
Development Finance	3 months – 5 years	£25,000 minimum	Amounts vary based upon company profile, credit history and credit worthiness
Invoice Finance	Rolling contracts	Up to 90% of invoice value	Terms and amounts vary depending on credit worthiness, quality of debtors

Software development is one of the fastest changing industries on the market, with new developments being released on what seems to be a daily basis.

Software purchases and licenses can take up a large chunk of your budget, and in some industries can cost tens of thousands of pounds.

You can purchase software outright, on a SaaS license or develop in-house. Choosing which option to take can be a dilemma for many business owners;

1. Purchase new software that could bring saving but can require staff training and potentially changes to your operating methods.
2. Stick with what you know, keep the same software which could potentially cost more in the long run due to inefficiency.
3. Develop in house so your software does exactly what you want it to, but do you have the staff expertise and resources to do so?

This is a dilemma that software developers are well aware of, and in response many offer free versions so business owners can "try before you buy" to assess suitability and gauge how easy it is to integrate into the business.

As with any purchase, if you're not sure which one is right for you, check out reviews online and find the one that has the best price/performance ratio for your needs.

Asset Finance is a form of construction finance used by businesses to purchase assets such as plant machinery and equipment.  Funds can be used to buy new or pre-owned assets, or can be used to refinance eligible assets you already own.

With asset refinancing, you can have access to the equitable value of the asset being purchased and use it as security for funding – making it ideal for those looking to expand their business without necessarily having to use cash up front.

VAT and tax finance is another common type of construction finance product and is used to spread the cost of a business’s tax liabilities.

If you are not eligible for a “time to pay arrangement” or do not want to owe HMRC any money, then VAT and tax funding can be a useful option – remove this as don’t want to highlight TTP

Using finance can be a good way to pay your bills on time while minimising the impact on your cash flow and keeping on track with your VAT and tax payments.

Bridging finance is a type of loan which can provide you with short-term financial support to bridge the gap between committing to a job and receiving payment.  Usually secured on property or land, you can borrow up to 80% of the total value of the land/property being used as security.

It helps ensure that funds will be available during the interim period, allowing your company to proceed with its projects without interruption.  Repayments can be taken out of the advance leaving no monthly debt to service throughout the term of the agreement (usually max 12 months term).

Bridging finance is crucial in encouraging businesses to undertake new projects while ensuring they are adequately funded before commencing work.

Invoice Finance is a type of business funding used by companies when they need to access cash locked up in unpaid invoices.  It usually comes in two forms - invoice factoring or invoice discounting.

Invoice factoring involves the lender taking on responsibility for sending out and collecting payments from customers, while invoice discounting you stay in charge of sending invoices and collecting payments.

There are multiple lenders available offering different invoice finance amounts; most will fund up to 90% of each invoice's total value.

If you're in need of additional cash to help your business cover a short-term financial gap, cash flow loans may be an option.

While cash flow loans are a way to get access to a short-term influx of money for your business needs, they're not meant to be used as a long-term solution.

This form of financing provides timely access to money that can help you manage your current cash flow needs without making a long-term commitment.