Tag Archives: finance

Non-traditional financial institutions can rip you with high interest

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When you are in a business you are always in need of capital. Sometimes to buy infrastructure for your business or you need money to fulfill your merger and expansion plans. It is also evident that you will not have the amount required at your disposal and therefore you have to hunt for a lender who can give you the money at an economical rate of return. Now the crux of the matter is to get a lender who can give you the loan amount at an affordable rate. There are many lenders who are also hunting for clients and are ready to provide loans but they have certain conditions which may not be acceptable to you. Either they will charge you with higher closing cost or they will give the loan at a higher interest rate. More or less, they are ready to give you loan which will be not as per your convenience.

For a person who owns a construction business, he is always in need of capital and his volume of requirement is always high. This means that a construction business owner is potentially a more feasible and appropriate client for the lender. In such a situation, the business owner should keep in mind his interest first. Just because he needs money, he should not go for someone who is providing loan at an unfavorable term and condition. There are few things which the borrower needs to analyze before he finalizes to go for the loan.

Credit rating must be good:-

A construction business owner borrows money to meet his business requirements and the frequency of borrowing money is quite often. In midst of borrowing money, he should also remember that he can’t afford to default any payment because if he defaults then that will have its ramifications on his credit rating which take a hit. No good lenders provide loan to people with poor credit rating and they eventually land up to non-traditional financial institutions who care less about poor credit rating but they offer loans with higher interest rates. This will really hurt you in the long run. You will pay more of interest and less of principal resulting in the non-depletion of loan amount. So a good/high credit rating will always benefit you in terms of availing loan at a lower interest rate.

Closing costs are extremely high:-

Whenever you go for a loan, there are few costs that you have to pay to close the loan. There are charges paid to the guy who will underwrite the loan, then charges to the attorney and also fees that will be charged by the non-traditional lenders to arrange for everything to close the loan. These fees can be exorbitant and might also pinch you. The traditional lender also charges closing costs but that is comparatively lesser than the non-traditional ones.

Construction houses should be extremely careful when they are dealing with lenders. They need to do a thorough study about the different costs that they need to pay to the lender and only if they are convinced with the terms and conditions that they should proceed any further.

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Administrative and finance are two crucial departments of a construction company

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Every company has few very crucial departments without which the functioning of the company is unthinkable. Like ways, the two most important departments of a construction company can unarguably be the administrative and the finance department. It is perhaps after the consultation from the head of these 2 departments that the company can take any major decisions. If either of these departments does not give their nod, there are high chances of non-happening of an activity. If heavy equipment and construction laborers are two vital parts of a construction company on the field then the admin and the finance departments are another two vital departments off the field.

A person who wants to establish his own construction company needs to understand the workings of these two departments thoroughly and once he/she is confident that he/she can take vital decisions after understanding the functioning of both the departments, he/she should go ahead. Rest of the important parts like knowing about heavy equipment, what machine is needed for which purpose can be advised by other professionals but there is no expert per say when it comes to the finance and the admin departments. No one can guide you accurately when it comes to the finance section as they do not know your business plan and the capital you have for investment.

If only someone knows about your business plans, they will be in a position to guide you. This work is ideally done by the Head of Department of the finance section since he/she knows about most of the projects the company is working on. However, if you are the owner of small sized or medium sized construction company then you probably not be able to afford an expert and qualified person who would be heading the finance department. It is perhaps you who have to take the lead and take all the important decisions. You will definitely be having few men working under you but they can only help you with data, the rest will be your call. Therefore it is necessary to understand how both these departments work so that you have a fair idea as to where the company is heading.

The work of the admin team is primarily restricted to taking care of the employees by providing them with all the necessary means that will enable them to work in a safe environment. In case, if the employee has any problem, the first point of contact he will approach is the admin team who in turn will check how to get that resolved.

If there is any monetary involvement in sorting out the problem then they might then get in touch with the finance team and check what can be done. If it pertains to any other issue that doesn’t seek the requirement of the finance team, then the process may become a lot simpler. However, it has been witnessed in most of the cases the admin team has to work in sync with the finance team and vice-versa making them the 2 most important pillar of the construction company.

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Take loans to finance purchase of heavy equipment

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It was never easy to start a new business and in today’s time, it has become more difficult to give a head start to a business given the sort of competition one has to face on a daily basis. A person has to sacrifice a lot to keep his business floating. On top of it, he has to juggle well between his personal and professional life. Under all these circumstances, when one is struggling to keep his business moving, it becomes difficult to incorporate something expensive in the business. Well, business in a construction industry is all about that. You have to be ready to bring in new equipment if the business needs it. You can’t let the offer go just because you can’t afford to buy the machine. Most of the time, a person also gets business after being evaluated on the kind of machines he possesses. Therefore, he needs to have the machines that are a part of his business requirements.

For small construction companies, it may not be so simple to buy brand new equipment. They have experienced serious financial crunch during the beginning of their professional career. They may not want to invest all that they have in buying equipment and then struggle for finances to meet overhead expenses. These overhead expenses cost dearly too many companies who are not financially sound. This has also become the reason why many start-up companies are forced to shut their businesses and look for something else. Construction segment is undoubtedly the most rewarding sector; however it rewards people who have managed to stay in this sector for years and have stood firm during turbulent times.

Taking a loan to finance heavy equipment may sound like a good option but it also has its limitations. One needs to be very sure that he will be able to pay the loan in time. This will help him to keep his credit score in place and will also keep his business moving. There are many financial institutions that are ready to finance people looking for loans on heavy equipment. It would be prudent to first check the interest rates of the institution before you take the loan. Many financial institutions offer lower rate of interest but they have certain service charges that are very high. It may make no sense to you to pay that high service charge to the company just to buy low interest rate. If you look closely, you will definitely find someone who is charging the service charge defined by their governing body and the interest rates as stated in the norms. That sort of company should be the one you should be looking at. Simultaneously, also understand the terms and conditions well. For instance, the term of the loan is crucial to understand. Also, the plan should have a provision to make early or part payment whenever you have excess money without charging anything extra for that. Ideally, the heavy equipment manufacturing company will arrange financial institutions for you. But if you want to use the services of any other organization, you are free to do so.