The advantages of modular construction procured via project finance agreements

April 13, 2023

Key decision makers across all industries are becoming increasingly open-minded to more cost, time, and energy-efficient ways of operating. This is particularly prevalent within the public sector, where securing funding is increasingly challenging and demand for services is at an all-time high.

We have significant experience within the modular construction sector, working with multiple providers including MTX Contracts, ModuleCo Healthcare, Premier Modular and McAvoy Group to introduce project finance solutions that help their end-users invest in much-needed infrastructure.

 What is modular construction?

Broadly speaking, modular construction involves the development of a facility in a controlled offsite location (typically within a factory environment), with the modules then being installed on site over a short period of time.

Modular construction offers a more viable alternative when compared with traditional, on-site construction, utilising a manufacturing-first process whereby most of the work is completed in the factory.

Why choose modular construction?

Modular construction offers faster delivery timeframes than a traditional on-site approach, minimising time spent on site and allowing for the majority of works, including design, production, and quality checking alongside any additional alterations to be completed offsite in a controlled factory environment.

This approach allows for increased collaboration with the end-user, allowing them to influence the overall look and feel of the facility throughout the design and development phase, enhancing working relationships.

From a financial perspective, modular building projects also offer improved budget control by eliminating variations, and costs are fixed from the date of order, while also providing alternate funding and procurement routes.

Is modular construction cheaper?

Modular construction projects typically use more sustainable, cost-efficient with data showing that modular construction costs can be 10 to 35 per cent cheaper compared to traditional methods. A modular approach provides improved management of materials that help reduce carbon emissions, allowing for the reuse and recycling of materials in a factory-controlled setting.

With the majority of manufacturing work being completed offsite, there is also an improved degree of accuracy when it comes to budget planning. With around  90 per cent of the work (depending on the manufacturer) being completed away from the end user location, quality checks can be handled in a factory-controlled environment, reducing the need for costly improvement works.

Most importantly, modular construction projects can also be made available via bespoke flexible finance agreements, whereby the cost to deliver the project in its entirety is amalgamated into a monthly fee, allowing the end-user to spread the cost over an agreed pre-payment term.

How to finance a modular construction project

Modular construction projects can be made possible via a bespoke project finance agreement, removing the need for upfront capital investment, and allowing end users to benefit from upgraded facilities, without the need to secure outright funding.

What is project finance?

Project finance involves the funding of longer-term infrastructure or construction projects whereby the project has the potential to be funded via monthly repayments from the cash flow generated by the new project.

Construction is particularly well suited to a project finance solution, as funding can be allocated to capital expenditure (capex), which is typically defined as a one-off cost that results in the acquisitionconstruction or enhancement of significant fixed assets.

Funding a so-called traditional approach to construction projects can be challenging, particularly within the public sector where it can be difficult to secure the required budget.

How does project finance work?

Project finance allows for the funding of a project to be delivered retrospectively using the cashflow generated through the project, often culminating in a cash-neutral or cash-positive finance solution that eradicates the need for outright capital purchase.

Modular providers can work with SAF to introduce a bespoke funding structure that considers the various phases and requirements of a construction project, collaborating with the team to create a tailored agreement for the end user.

From here, the end user follows an agreed repayment schedule for the delivery of the project, allowing them to benefit from their new modular building or facility straight away.

How can people use flexible finance to fund modular construction projects?

At SAF, we are experienced in developing bespoke finance agreements that consider the financial drivers of the end-user to deliver a solution that suits all parties.

We work closely with both the modular provider and the end user to understand the rationale behind the new facility, understanding the “non-negotiables” associated with the project.

From here, we work with a proposed budget to establish a finance agreement that will allow the end user to pay for the project development, delivery and – where required – upkeep in a monthly fee.

Construction projects can often be full of unpredictable obstacles, delays and complications, which is where modular construction offers an attractive solution.

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