The building and public works sector is an industry that requires considerable investment in equipment and infrastructure. It is a key sector, contributing to the construction, development and renovation of infrastructure that is essential to the functioning of the economy. However, financing construction and public works assets often represents a major challenge for companies in this sector, both manufacturers and users, as the assets are often very expensive. What’s more, users sometimes have a short-term material need and do not wish to buy their equipment, but may prefer to hire it. So, in this article, we will look at the different types of construction assets that exist, the traditional sources of finance that may be available, and the alternatives available if the previous options are not suitable.
The construction and public works sector includes a variety of assets needed to carry out construction projects.
These include heavy equipment such as cranes, bulldozers, excavators, site vehicles and specialist tools and machinery. These assets are essential for carrying out construction work, but they can also represent a considerable investment for construction companies.
In addition to equipment, construction companies also have to finance other assets, temporary infrastructure such as scaffolding, site fencing, shelters and sanitary facilities, as well as purchasing construction materials and labour costs.
The diversity of assets reflects the complexity of construction projects and the importance of adequate financing to acquire them. It should also be noted that each construction project is unique, and asset requirements may vary depending on the nature and scale of the project.
Traditionally, construction companies have two main sources of finance for their assets: suppliers and banks.
Firstly, suppliers. Suppliers can offer financing options such as hire purchase. These solutions offer deferred payment terms, enabling companies to receive the assets they need before having to pay for them in full. This option has the advantage of making it easier to acquire the assets, but it can also lead to increased costs in the long term due to interest or additional charges.
Secondly, banks offer commercial loans and lines of credit specifically for asset financing. Companies can negotiate flexible repayment terms depending on their financial situation and the estimated life of the assets. However, obtaining a bank loan, or a lease, may be subject to strict criteria, such as guarantees and good financial health.
In some cases, traditional sources of finance may not be suited to the specific needs of construction and public works companies, so existing alternatives need to be explored.
Firstly, some companies choose to self-finance. This involves using the profits generated by the business to finance the necessary assets. Although this option may take time to accumulate the necessary funds, it allows the company to maintain full control over its assets and minimise interest costs.
Another solution is to look for alternative investors or financial partners. This is where Chetwode comes in. Chetwode advises on the financing of industrial assets. Chetwode gives companies access to finance via private investors or investment funds, which will invest in specific projects or in the company itself. Depending on the client’s needs, Chetwode can provide finance in the form of lease financing, via the creation of a captive, or via the issue of a bond, for example.
The financing of construction assets is crucial to the success of companies in the sector. The equipment and other assets required to complete construction projects can represent a considerable investment, and require specific approaches to financing. Traditional sources of finance, such as suppliers or banks, offer common options, but in some cases they may not meet the specific needs of businesses. Chetwode can help you find a solution for those businesses with specific needs. So if you’re looking to finance your construction business, or invest in equipment, contact Chetwode who can help you with amounts of 300K euros and more to get your case reviewed.
This article was written by Julien Dufour during his internship at Chetwode as an assistant account manager and MSc Finance, Investment & Wealth Management student at NEOMA BS. He was also a CFA Level I candidate.