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Construction loans are a type of short-term finance that can help you pay for the costs of building a new facility or expanding an existing one. Community banks have traditionally dominated the construction loan industry. However, a building loan program might benefit a wide range of financial institutions. There is a large market for construction loans, and if you are a seasoned banker, credit union, or mortgage lender who has never offered a construction product or has just focused on rehabilitation loans, it may be time to start up a construction loan program.
Operating a firm in the construction industry comes with its own set of problems. Whether you’re a general contractor, electrician, plumber, HVAC, home improvement, remodeler, or any other type of construction profession, you’ll need business financing at some point to keep or develop your company.
The first step in that process for business owners is to determine their needs and benefits of obtaining a small business loan, small business line of credit, or any other type of small business finance product.
Reasons most construction contractors need money for their business.
1. Finding Skilled Labor
Skilled labor is at the heart of any building industry. To achieve the tasks at hand, any possibility of success will necessitate consistent, high-quality, skilled labor. Maintaining and growing a talented staff will be a continuous effort that requires a lot of focus.
2. Rising Cost of Materials
Material costs are the one challenge that contractors have the least control over, but there are strategies and pre-planning that can help mitigate costs and improve profit margins, such as purchasing in bulk, anticipating price increases by monitoring supply chains, and joining material purchasing cooperatives.
3. Completing Projects on Time
Project operational management necessitates the ability to plan, schedule, perform, and execute particular task needs within a set time limit. To attain the ultimate goal of completing a project on schedule without sacrificing quality, supplies, labour, and customer needs must be balanced.
4. Attracting New Business
Finding customers is a never-ending task. Longevity requires developing a plan that can survive the ups and downs of the construction/contractor industry. The marketing strategy should be multi-faceted, incorporating many avenues of business acquisition rather than relying solely on referrals.
5. Invoicing and Payments
It can be difficult to get your work orders and invoices, especially in this economy. It will be critical to take steps to mitigate any collection challenges, such as obtaining higher deposits upfront and extending the payment to the funding stage of the project. A business credit facility can also help you with revenue flow when customers don’t pay on time or at all. You don’t want to be left holding the bag in these uncertain times without a collecting mechanism in place.
Construction contractors must worry about delivering high-quality projects on time while also generating a profit. So far, everything appears to be straightforward. However, many contractors struggle to make a profit as a result of pricing proposals made to “win” the contract or bid. Let’s face it: Customers seem to prioritize price over expertise, experience, and job quality. However, this does not have to be the case. Reputation and quality at an acceptable cost are what really win. It is the contractor’s responsibility to influence the customer’s thinking in order to achieve a better price-quality balance and win the work more often than not.
Top 5 Reasons To Take A Commercial Construction Loan
1. Cash Flow
Cash flow is king, as the phrase goes. A business credit facility is a critical safety valve for when cash flow gets constrained. There are times in every building contractor’s career when they hit a wall. A contractor may be balancing multiple projects or work orders at the same time and must balance labor expenses and materials with customer payments and revenue. This delicate equilibrium can be thrown off if there is an increase in delinquency, delay, or collection of completed work that doesn’t match existing revenues, or, even worse, if there is an increase in delinquency, delay, or collection of completed work. A building contractor’s income crisis scenarios might be seen or unseen, and a business credit facility can help by providing a solution and protection.
2. Construction Loans Give You Control
You may determine exactly what you want out of your home remodelling with the added financial cushion of a construction loan. You can use the financing to help you realise your dreams; whether you’re building or remodelling, you can contribute to the design of the home you’ve always wanted.
3. Marketing & Advertising
Don’t rely just on referrals, but they are crucial to cultivate and grow. Even if you are content with not growing your firm, you must safeguard it against economic downturns and diversify your customer acquisition methods. Don’t forget to diversify your marketing efforts, whether you’re focusing on generating leads via the internet, attending chamber of commerce events, or using other methods. Build your new marketing strategies and tactics around the strategies and tactics that will help you achieve your sales targets.
4. To Manage a Growing Team
Any construction or building trades business relies on skilled personnel. Building a good team takes time, relationships, training, and nurturing. If skill levels aren’t acceptable, you can’t compromise because it creates a climate of mediocrity in the workplace. This is an area where financial input is invaluable. Providing signing bonuses and monetary incentives to reward productivity might be worth their weight in gold.
5. Marketing Payroll
When it comes to payroll management, there is no room for error. As a business owner, you promised your employees that they would be paid for their labour. It’s not just a legal issue; it’s also a practical one. The link of loyalty and dedication will be destroyed if workers do not believe they will be paid. Having a business line of credit or other business credit facilities can avoid the danger of a cash flow shortage affecting payroll.
If you’re trying to build a new framework or add on to an existing one, you’ll almost certainly need some money to get it done. Construction loans are a great method to receive the money you need for things like building materials and labour. Consult a commercial lender to see what type of loan your company is eligible for. Before deciding what is best for your company, be sure you grasp all of the advantages and disadvantages.