Financing options for construction companies

Working capital loans

A bank or other lender extends this credit to the company for its operation: payroll, purchases, site expenses. It finances the company as a whole, so it suits contractors working on third-party projects and builders with several projects at once.

• Who it suits. Companies with financial statements and an income history the lender can review.
• What the lender reviews. The ability of the company as a whole to repay.
• Rediscount lines. Bancóldex works as a second-tier bank: its funds reach companies through banks, finance companies and cooperatives. The lender sets the requirements and you apply through it.

Construction loans

A bank loan for a specific real estate project. It is repaid from the funds the project generates, mainly from unit sales.

• How it disburses. Against construction progress. The bank releases funds as the work advances.
• What collateral it requires. In the product Bancolombia publishes, a first-ranking mortgage on the project land.
• How it is repaid. In that same product, interest every three months and principal at the end of construction plus 12 months.
• Keep in mind. It covers the whole project, but the first disbursement can arrive after the site has already started buying. The guide how to finance the materials for a project explains that gap.

Supplier credit

The supply store, distributor or manufacturer delivers the material and gives you time to pay. The terms depend on your relationship with each supplier.

• Who it suits. Companies that buy repeatedly from the same supplier.
• What to consider. Each supplier sets its own limit and terms, so a project with ten suppliers manages ten separate agreements.
• What the law says. Law 2024 of 2020 caps the payment term for commercial invoices at 45 calendar days from delivery, except for transactions between large companies. That is why many small suppliers cannot offer longer terms.

Factoring

The company sells or assigns an invoice it has not yet collected and receives the money before the due date, at a discount. It mainly suits contractors and subcontractors who invoice a builder or a public entity and wait weeks to be paid.

• What the invoice needs. To circulate as a negotiable instrument, the electronic invoice must be validated by DIAN, carry a due date and have the buyer’s acknowledgment of receipt, receipt of goods or services, and acceptance. These events are recorded in RADIAN.
• How it is transferred. By endorsement, also recorded in RADIAN.
• What the invoice buyer reviews. Mainly the ability of whoever owes the invoice to pay it.

Confirming

The reverse of factoring. The buying company asks a lender to pay its suppliers and then repays the lender a single debt on the agreed terms. In the product Bancolombia publishes, the term runs from 1 to 180 days.

• Who it suits. Companies with steady purchase volumes and a bank willing to give them a limit for this product.
• What the lender reviews. The buying company, since it pays in the end.
• What the supplier gains. It is paid before its invoice falls due.

Revolving materials line

A credit limit to buy materials from several suppliers under one agreement. This is how it works at Parex:

• Terms of 30, 60 or 90 days.
• The supplier gets paid on delivery. You repay Parex on the chosen terms.
• Revolving. The available amount is released as you repay and you use it again without a new application.
• Decision within 48 hours of receiving your company’s complete documents.
• Upfront purchases from your first order if you do not have a line yet. That payment history counts toward your next financing terms.

How they fit together

Each option covers a different gap in cash flow and they can be used together. An example in a housing project:

Questions to ask any lender

1. When does the money arrive? On approval, against construction progress or on the day of each purchase.
2. What collateral is required? Mortgage, promissory note, partner guarantees or none.
3. What is the total cost? Rate, fees, insurance and credit review costs, added up in pesos for the term you will actually use.
4. What happens if the project is delayed? Whether the term can move and at what cost.
5. Can I reuse the limit? A revolving line is released as you repay. A fixed-term loan ends once repaid.

This guide describes how each option works. Each institution sets its exact terms, so review them in writing before you sign. If your project is in Bogotá, Medellín, the Coffee Region, Barranquilla or Cartagena, you can start with Parex upfront or by applying for the line.

Related