OPTIMIZING FINANCING COST USING A LINE-OF- CREDIT AND A LONG-TERM LOAN

Contractors need financing throughout a project, mainly because (1) the owner withholds retainage to make sure that the project is performed properly by the contractor, and (2) the periodic payments made by the owner are usually delayed. Since financing has a cost, the integration of financing and scheduling is of vital importance in managing construction projects successfully. This study presents a model that minimizes financing cost by integrating a line-of-credit and a long-term loan using a work schedule with normal activity durations. The proposed model provides the optimum schedules of financing inflow (borrowed money) and outflow (repayments of principal and interest). The contractor benefits when the proposed model is used because the contractor: (1) pays less financing cost, (2) obtains higher profit, and (3) has more negotiating power with a lender because the contractor provides an optimal financing schedule when applying for a loan and/or credit line. The model has been tested in two scenarios and the results are analyzed. The model works well as long as the original work schedule is reliable.

کلیدواژه ها:

Project Financing ، Long-term Loans ، Lines of Credit ، Cash Flow Forecast