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Financing Problems for Construction Projects Part 1

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Running a business is never simple. Regardless of your industry, there will always be outside forces threatening to derail your operations. This is especially true in the construction industry, which requires a steadfast commitment between multiple parties. However, the source of contention in business can almost always be traced back to the same source: money.

In this two-part article, the Fort Lauderdale construction lawyers at Cotney Construction Law will discuss financing problems for construction projects. Construction projects have the potential to be extremely lucrative with the right team at the helm, but a poorly managed project plagued with cash flow problems can lead to a financial disaster.

Capital Resources Fuel Construction

Investing in construction rarely results in a short-term gain. In fact, investing in a building project requires a significant influx of capital initially punctuated by financial returns in the long term. As a result, capital resources fuel construction in a way that makes it impossible to get a project off the ground without dedicated owners who have the ability to procure capital resources to finance the cost of construction.

Contractors must remain diligent when securing project financing; otherwise, the project may fail. When there is uncertainty about financing on your project, this sense of unease can spread to other organizations and entities involved in your project. For example, you could burn bridges with a critical material supplier if they start to question the legitimacy of your funding. Although the owner can choose to cover the expense of retaining the services of these organizations, it is highly unlikely that they will.

Financing at the Project and Corporate Level

Financing projects relates to an overarching issue plaguing many businesses today, the general issue of corporate finance. If a single owner finances multiple projects together, the associated cash flow requirements no longer constitute “a project.” At this point, the financing is taking place at the corporate level. In essence, the financing problem acts similarly on both levels, with project and corporate financing comprising the micro and macro level respectively.

So what’s the main issue? Between the initial capital investment and the return on investment (ROI), owners are responsible for obtaining funds to keep projects running smoothly and on schedule. By considering the values tied to the cost estimate and the construction plan, we can capably predict the cash flow of costs and receipts for a project.

In part two, our Fort Lauderdale construction lawyers will continue to discuss financing problems for construction projects including expenditures, revenues, and financing options.

If you would like to speak with a Fort Lauderdale construction lawyer, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.