By Jim Salters
As the new year kicks off, most construction companies are laying out plans for the months ahead. While planning, it’s important to consider whether the company will need an injection of capital at some point throughout the year. This may serve to fulfill a budgeted need, but there should also be room for unexpected costs like hiring on staff when you suddenly land a new contract.
Taking some time to prepare for the search for capital can provide the flexibility and agility needed to act quickly and stay on the path towards growth. Here are a few key areas to consider:
Run the Numbers
The construction industry is expected to grow significantly over the next few years. Research from PwC estimates that global construction output will grow by more than 70 percent by 2025, with much of that growth coming from the United States.
Companies should be prepared to manage individual growth. A close look at cash flow and projections can provide valuable insight into how much capital may be required in order to stay competitive. This can be a good opportunity for the financial manager to share the expenses forecast for the following year along with an estimate on how much borrowed capital the company can afford. These should align with the company’s financial condition to meet profitability and liquidity goals.
Organize Administrative Documents
The need for additional capital may come unexpectedly and require a quick turnaround. To avoid a last-minute rush, business owners can compile documentation in advance. This should include financial statements and tax returns, the business’ federal tax ID, and the owner’s social security number along with any legal documentation like business licenses and registrations.
In addition to paperwork, any matters of interest that could affect the company’s financial standing should be disclosed to a potential creditor. This helps build trust and provide the creditor with the most accurate picture of the state of the business.
Create Your Roadmap
Securing financing has been historically difficult for construction companies. Due to the nature of the business, it can be difficult to portray the stability most creditors seek. This makes it imperative that business owners understand all the financing options that are available to them.
Traditional lenders include banks and the Small Business Administration, who can provide loans that typically offer low interest rates and standard terms. However, they have strict standards for qualification and might take longer to come through.
Another option to look at is alternative lenders. Many construction firms may believe they won't qualify for a loan or other financing because of their industry or less-than-perfect credit, but business owners might be surprised by the options available to them. While alternative lenders may offer higher interest rates, they usually have a quick turnaround time and provide more flexibility. Some funders place many construction applicants into more affordable financing; in addition, many use soft credit pulls that won't affect business’ credit and can take less than 30 minutes over the phone. When evaluating alternative lending and funding options, public records and customer reviews can offer insight into their policies and practices.
Through careful planning and preparation, construction companies can set themselves up for financing success even in a tough industry. The more organized a company seems, the better it looks to potential creditors.
Jim Salters is president of The Business Backer. Through mission-driven leadership and innovative strategies, he has repeatedly generated 10-times growth and profitability leading early stage companies. After mortgaging everything his family owned to pursue his vision for The Business Backer, the company has become an industry leader in connecting small businesses with the capital and expertise they need to survive and thrive. Salters’ passion and belief in the mission he created for The Business Backer has earned the company numerous awards for its ethical business practices and record breaking growth. Salters’ leadership is recognized both locally and nationally, with awards such as The Business Courier’s "Top 40 under 40" and a winner of the Ernst & Young Entrepreneur of the Year Award. He is a graduate of Princeton University, where he was an all-conference linebacker for the Tiger football team.He resides in Cincinnati, Ohio, with his wife Jody and their three young children.