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What Can Construction Finance Be Used For?

Estimated Read Time: 6 Minutes

JESSICA LAMBERT , 26 January, 2023

One of the biggest challenges for construction companies is managing to bridge the financial gap between starting a project and getting paid once it’s complete. The lengthy wait on payments can put a huge strain on cash flow and the collapse of Carillion, formerly one of the UK’s construction giants, only further demonstrates what construction firms are up against.

If your construction company has landed a few large projects and you’re worried about how you will be able to finance them over the coming months, Construction Finance could be the answer you’re currently seeking.

With this type of lending product, contractors or sub-contractors who provide their construction services under a contract will be able to access cash that is tied up in lengthy projects.

Stage payments and milestone instalments will be a concern of the past, as you will no longer rely solely on agreed deadlines to get the cash you desperately need to complete important contracts.

The way it works is simple – we provide your business with a pre-agreed advance of funding, and our fixed fee model serves to remove the uncertainty associated with the costs of traditional lending products. The nature of the construction industry is enough to pile on the pressure for sub-contractors and construction firms, so by moving away from the traditional approach of variable fees, SMEs can rest assured that there are no unwanted financial surprises in store.

Boost Turnover By Completing Projects On Time

Businesses that flourish tend to be the ones that make the best money management decisions at key stages and realising that borrowing money when in a stronger position financially will enable your business to increase its profitability.

By having access to working capital, your SME will be able to complete projects on time, with no financial complications or setbacks. The ability to keep going without relying on immediate payment once projects are complete will mean that you can attract extra business and start delivering on new contracts too.

Combat Late Payments

If there is one thing that you can almost guarantee with the construction industry, it’s that late payments will always continue to be a problem due to the extensive amount of stages within the supply chain itself. When one payment is late, it usually has a knock-on effect and impacts most businesses later in the cycle.

We work with companies involved at all stages of the supply chain, such as: building materials; civil engineering; architecture and planning; machinery; shipbuilding; rail road manufacture; industrial automation and many more…

Whilst we can fund a multiple of business sizes, this product from Nucleus Commercial Finance is best suited for companies who require at least £250k.

Ensure Good Payment Practice With Payroll and Suppliers

A common problem that SMEs operating within the construction industry face is managing to meet both payroll and supplier payments on time. Being able to pay wages before the main contractor settles your payment application can be a massive obstacle for many SMEs, but with additional funding in place, this should no longer be a problem.

Strong payment practices to all of your suppliers should be a priority. So, once all terms have been agreed, your business must adhere to payment timelines in order to foster healthy relationships with every supplier on your books.

A failure to pay your suppliers on time comes with a multitude of consequences, including:

– Your business being slapped with late payment charges or even compensation claims.

– The reputation of your business can take a huge hit, especially if word gets out that you continually miss payment deadlines.

– Unattractive pricing and terms from suppliers moving forward.

– Giving the impression that your business is facing financial difficulty.

By using external funding, you can ensure that you pay all of your payroll and supplier obligations. Promoting good payment practice is essential if your construction business is to thrive and grow as you intend.

Improved Purchasing Power

We understand that in your niche there are colossal upfront costs that your businesses has to front, which means that sometimes it can feel impossible to get your SME into a better purchasing position.

In order for your business to keep up with demands, it must always have access to cash to pay for raw materials, new supplies and general operating costs, to name just a few.

By maximising your cash flow with our Construction Finance product, your business will automatically have improved purchasing power. Your business credit score will improve, and this will allow you to purchase more goods and services at better prices. Your construction business can purchase additional machinery that has been needed for some time, hire extra employees but what is most attractive of all is that your SME will likely be able to get discounts from vendors.

Businesses that are in stronger positions financially tend to get discounts if they make large purchases on an ongoing basis from the same vendors. It is common knowledge that companies with better purchasing power are able to secure better deals.

Peace of Mind

The construction finance available from Nucleus is a fully confidential facility, which means that there is no need for disclosure to debtors. Peace of mind is vital for the success of your business, which is why with our bespoke Construction Finance product, we provide high levels of expertise with our in-house Quantity Surveyors.

Overcome The Shortage of Skilled Workforce

Completing your well-earned construction projects on time will of course be your top priority, but as you’ll no doubt already know, it’s not always a given. A major factor in delivering projects and key milestones on time is having the right workforce to get it done. Not only is there a national shortage of construction workers, but finding and keeping workers that are skilled at what they do is a huge challenge construction firms face.

With additional cash at your disposal, you’ll be able to find the best workers for your projects and retain them, as you’ll be in a position to offer competitive pay rates and job perks.

Handle Surging Material Costs With Ease

As material costs soar, construction firms like yours may struggle to stay afloat without an additional source of income.According to figures published by the government, construction material prices rose in 11 of the 12 months last year – a worrying statistic for those hoping to run a successful construction business in future. It also found that contractors are spending an eye-watering 20% more on vital products and components.

Construction consultancy Linesight commented that the conflict in wartorn Ukraine had resulted in “volatility” in both the pricing and direct availability of critical raw materials.

Contractors and construction firms have been urged to secure materials ahead of projects to avoid the potential backlash of the catastrophic supply chain issues that lie ahead as a result of the war in Ukraine.

With our Construction Finance product, you’ll be able to borrow between £250k and £50m to tackle the rising costs of materials with ease.

Meet Regulatory Changes and Push Towards Net Zero

Significant changes came into effect in mid June of this year, with the hope that these changes will help the UK move towards its targets for Net Zero by 2050 by increasing the energy efficiency of buildings.

Simply put, the Government are keen to reduce the country’s carbon emissions as part of the bigger, worldwide agenda to reduce global warming – and unsurprisingly, construction is a major contributor to heightened carbon emissions.

In fact, whilst these changes should have already been implemented in June, they are merely a stop-gap as bigger, longer-term and more significant measures are coming into play in 2025. Amongst the many immediate regulatory changes are the mandatory requirements to cut carbon emissions in new homes by 30%/27% in extensions, existing buildings and non-domestic buildings.

If these new building regulations are not adhered to, construction firms will be served with an enforcement notice from their local authority, and legal action may be pursued. Seek additional funding to avoid any disastrous impact on your business as a consequence of not following the new regulations.

For more SME advice and tips, read our related posts below. If you are experiencing cash flow challenges or want to realise your business growth plans, get in touch with our team of Funding Specialists today on 020 7839 9451 or email [email protected].





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