The Different Types of Capital for Construction Companies
Capital is a vital part of construction companies, from beginning one to keeping it running. There are different types of capital, and it's important to know what they are and what they mean for construction companies.
What Is Capital
Capital refers to the aspects of a business that are generating value. The most common
form of capital is money, but capital can also be gained through labor, equipment,
technology, or materials.
Money is the most critical form of capital because a business can't fund the other forms without it. With that in mind, it's time to look at the three types of capital for construction companies.
Working capital is the difference between a company's assets and liabilities. A
company's working capital is a short-term glance at its present state of financial health.
Regarding working capital, you want your business to have a substantial amount more assets than liabilities. When you have this ratio, your company can grow. A slight difference between the two can make it to where you're meeting primary financial responsibilities, but your company can't grow beyond its current scope. If a company's liabilities are higher than its assets, this leads to financial issues that can mean the end of a company.
Working capital allows your company to pay bills, provide income to workers, and purchase new tools and equipment as needed. Essentially, it's the lifeline for your business ‐ without it, a company can't survive.
Debt capital refers to funds a construction company receives through borrowing from a
bank or other financial institution. Debt capital is often used to make large purchases
with the idea of paying for them over time with working capital versus one lump sum.
Taking out debt for your business may not sound like a great idea, but it's often an essential way to manage the cash flow in the construction business. As long as you're responsible and pay the debt on time, your company can pay operating costs, grow, and make large purchases simultaneously.
Like people, a business must have a credit history to receive a loan. Most construction companies will start by opening a business credit card for everyday expenses to build that credit. Once your company has a history of making on-time payments, it will be easier to get larger loans when the need arises.
The final type of capital is equity capital. These are funds that come from investors,
often in the form of purchasing shares in the company. Working with private investors is
the most common form of this in the construction business. Individuals will buy a
percentage of the company, providing capital to grow the business. In exchange,
investors are typically given some say in how the company is handled.
Utilize Nationwide Notice, Inc. to Streamline Capital
Capital is what makes construction companies successful. Part of having enough capital
is ensuring your company is paid on time for projects. Work with Nationwide Notice to
ensure your company is receiving funds for every job you do.
Nationwide Notice, Inc. can partner with construction companies of all sizes, and strive to work with your contractors and sub-contractors by using existing lien laws as leverage to ensure payment, as well as secure their lien rights to get the money they deserve. The experienced staff at Nationwide Notice, Inc. will assist you in submitting and tracking the correct legal documents required by your state to protect your lien rights which is a valuable tool that aids with your receivables. You can learn more about all the services we provide on this page or find out more about what makes us different here.