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7 Ways to Use Your Construction Business Loan

Staff Writer
Staff Writer
January 31st, 2023

When running a construction business, you are susceptible to gaps in your cash flow as you move from job to job – especially as you look to grow and take more on. You may ask for a down payment up front to secure a project, but this only covers a portion of the costs, typically less than 50%. You likely won’t receive full payment until the project is completed. If the project runs long or new project opportunities arise while you’re still in the middle of an existing job, there’s a chance your outgoing costs will exceed your incoming revenue which would interfere with your ability to efficiently maintain your operations. In this case, you may want to consider getting a loan for your construction business.

Loans for a construction businesses are different from bank loans. For starters, banks tend to be much more stringent in their loan application process, and you’ll have to meet multiple requirements to even be considered. Construction business loans are a more lenient and time-sensitive alternative. 

In this article, we’ve outlined seven different ways you could put a construction business loan to good use: 

1. Starting your construction business

A little capital goes a long way when you are working to get your business up and running. A construction business loan can be used for renting office space, buying office equipment, hiring employees, and marketing your new business. 

This also applies to expansion of an existing business. A loan can be put towards opening a new location, staffing it, and marketing the growth of the company. 

2. Hiring a competent crew

No matter how big or small your construction business if, you’re only as good as your crew. A loan can be put towards finding and recruiting the best engineers and laborers in your area, and properly training them on everything from using the machinery to construction site safety measures. 

A job may also require you to hire specialized workers like plumbers, carpenters and electricians. Loans can be put towards these strategic hires to ensure you are equipped with the best team to complete the project.

3. Buying construction equipment

Second to your staff is the equipment you need to complete the projects you’re working on. Whether you are starting a new business and need cash upfront to purchase or lease new equipment, or you’re an existing business that needs to replace old equipment or have repairs made, a construction business loan can be a great resource to cover such costs. 

It could also be used to purchase safety equipment and gear to keep your employees safe on the job and comply with safety regulations. 

4. Covering operating expenses

Both seasonal and daily office expenses need to be met on time. These include employee salaries, rent and utilities, insurance permits, legal fees, and taxes. If you’re experiencing gaps in cash flow in between projects or while you’re working on one and waiting to be paid, a construction business loan can be a good way to supplement these ongoing expenses. 

5. Paying suppliers in advance

Your suppliers are essential to your business. Finding the right ones requires money. Plus, once you have found them, you’ll need to make down payments for materials ahead of projects.

Maybe your suppliers are offering discounted prices on materials or equipment during the slower seasons. You may want to make certain purchases to take advantage of the cheaper prices, even if you don’t necessary need the items at the present moment. You can use your business construction loan to make such purchases upfront and then claim the items from the supplier at a later date when you do need them. 

6. Covering damages caused by natural disasters

Natural disasters can cause severe damage to equipment, property, and materials, not to mention the construction site itself if you’re in the middle of a project. . In the event that this does happen, your construction business loan can be used to replace destroyed equipment or materials, and to clean up the construction site so you’re able to get the project back on track. 

If the site is damaged, there is a strong possibility that construction gets postponed and won’t meet the set deadline. Depending on the location where the site is located, this may also require you to pay construction licenses since your work schedule has been moved. Your loan could also cover this cost. 

7. Preparing an emergency fund and insurance

An emergency or unforeseen event – like a natural disaster, economic recession, or global pandemic – could cause irreparable damage to your company. It’s imperative that you create a savings nest egg to serve as a cushion which you can fall back on should such an event occur. It’s always best to be proactive in these cases, versus reactive.

That said, with so many current expenses to meet – operational costs, purchasing equipment and materials, etc. – it can be challenging to save funds for a theoretical event. A construction business loan can serve as the foundation for this nest egg. If the COVID-19 pandemic has taught us anything, it’s how crucial an emergency fund can be in challenging times. 

For construction companies in particular, every job poses the risk of accidents on the project site. An emergency fund can also be used to cover any medical emergency cases to compensate a crew’s medical bills beyond what insurance covers.