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When Businesses Need a Loan

The United States is known for being a nation of businesses and entrepreneurship, when business-minded individuals and groups can launch their very own enterprise. Most businesses in the United States are small ones with thin cash reserves, and they may need to take out loans from a payroll funding company, law firm funding companies, contractor funding firms, and more to keep their cash flow smooth. The construction industry in particular is quite large, as there is always a need to construct new buildings or renovate new ones, ranging from apartments and hotels to banks, schools, libraries, and more. But many of these companies don’t have the money in their pocket to fund such projects or even pay their employees, so a payroll funding company or a construction lending service may help out. Smart and careful business owners may reach out to a payroll funding company or other lending firms to cover their expenses in their company’s infancy.

A Payroll Funding Company

Business owners take out loans for all sorts of expenses, and this may even include paying the employees. But the need for a payroll funding company isn’t necessarily a sign of desperation; many new companies are small and don’t have much money on hand, and it’s practically standard procedure for these companies to take out loans to cover their expenses. After all, a young company needs to maintain strong employee retention rates, as turnover is bad for any company, even bigger and wealthier ones. Employees at a new company may be frustrated if the company has trouble paying them fully and consistently, and they may leave if they feel like their paychecks are unpredictable or unreliable. Thus, a business owner may reach out to a payroll funding company in their area and secure a loan to cover those employees’ paychecks and salaries (or wages) until that company grows enough to pay back that loan and cover its own payroll expenses.

Construction Loans

Another major arena for business loans is construction loans, which is a whole topic in itself. For the most part, conventional loans involve the borrower getting approved, then receiving 100% of the loan’s value in one lump sum right away, to be paid off in installments. But this is not the case for construction loans. Rather, contractor managers will take out these loans to cover the costs of land development, worker payment, and material costs, and get that loan in pieces. And even for smaller construction or renovation projects, that loan may be quite impressive, totaling hundreds of thousands or even millions of dollars for the entire project’s various costs.

When a contractor crew is approved for a loan, the lender will provide that loan in pieces that are provided as the project makes progress. For example, the contractor team may get the first piece of the loan, then develop the land and prepare it for the project. With this milestone reached, the lender will now provide the next portion of the loan, and the contractors will hire concrete experts who construct the building’s foundation. Then the same is true for the frame, installing utilities, and so on. The money lender, meanwhile, will send out agents who will inspect the construction site and ensure that each phase of the project has been completed properly. If this is the case, the loan portions will keep coming.

This whole time, the borrower will pay off only the interest of the construction loan, and even then, only interest for all loan portions received so far. Later, when the project is complete, the contractors will still owe 100% of the principle of the loan. In most cases, this will be difficult to pay off, so the construction company will trade one loan for another. The contractor team will take out a commercial mortgage on the completed building, with that very building being used as collateral for that loan. The construction firm uses the mortgage loan total to completely pay off the original construction loan. The construction company is still in debt at this point, but the difference is that the company may pay off that mortgage on that building in installments. And in most cases, this will certainly be easier to manage than trying to pay off 100% of a construction loan’s principle up front.

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