Your construction company is growing. You’ve just won your biggest bid ever. That’s a thrill for general contractors. And a source of great pride. Until you realize how much money you’ll have to spend before the job even gets underway. Will the deposit cover all of it? Not likely. Besides, you don’t have that check yet. And it’s time to get busy getting ready. Small business loans can help.
Sometimes you have to borrow money, to meet payroll and operations expenses when cash flow isn’t enough. This is a common problem for general contractors. Business is seasonal in most parts of the country. Business cycles are long – that lag time between winning the bid and getting your deposit. Or getting interim payments once the job is underway. And final payment once the job has been completed.
But you need to ramp up for new jobs. Hire more people. Purchase more materials. And sometimes you want to borrow money, to expand your equipment fleet or take advantage of a larger-than-usual opportunity. Small business loans can help.
There are a lot of myths about small business loans. And some misunderstandings about how they work. But general contractors need working capital. If you buy into the myths, your business will suffer. You won’t have confidence to bid some jobs, and you won’t be able to grow. Let’s look at the facts about secured and unsecured business loans.
MYTH #1: BANKS ARE MY ONLY OPTION
This is the age-old assumption. Except banks don’t make many small business loans, especially to general contractors. So you think you’re out of luck. The truth is, you have plenty of other options. And you’ll probably like them better.
Even if you have a well-established business and strong credit, applying for a bank loan is tough. You’ll need collateral. And a personal guarantee. Worse, it’s slow. That might be OK if you’re looking for major long-term financing, but not if you need money quickly.
Alternative types of small business loans for general contractors
- Asset-based financing may be an option, using a non-bank lender. You can put up your equipment, real estate or other assets as collateral.
- Unsecured business loans are based more on business performance than credit. Lenders look at current and future ability to repay, not past history. UCS can help general contractors find unsecured business loans even if you have a short business history, bad credit, tax liens or a past bankruptcy.
- Accounts receivable financing, or invoice factoring, may be another option. Not all contractors like this, because they are uncomfortable knowing a third party will be making collection contacts.
The SBA’s new CAPLines program is a revolving line of credit. It “gives small businesses more flexibility to finance the contracts, subcontracts, and purchase orders they compete for and win – both in the public and private sector.” CAPLines was created to help small businesses manage their cash flow better, so they can create more jobs. Most of these business lines of credit are funded through community banks.
Michael Kissinger says, “Getting a small business loan can be complicated, but don’t believe everything you hear about the process. While obtaining a loan for your small business is no easy feat, it doesn’t have to be an insurmountable trial unless you go through a traditional bank.”
Alternative lenders can get you approved in as little as 24 hours, and you can have funds in hand within a few days. But online lenders are not all alike. You need the right partner. One who focuses on personal relationships. One who offers long-term guidance about small business loans, not just a quick deal. That’s how we do business at United Capital Source.
MYTH #2: IT TAKES FOREVER TO GET A CONSTRUCTION LOAN
It can take months to obtain a traditional bank loan. Or a typical SBA-backed loan. That said, United Capital Source now offers SBA Marketplace loans. These loans aren’t for all general contractors, because you do need pretty good credit. But if you qualify, you can get from $30,000 to $350,000 in just seven days. Interest rates are much lower than other SBA loans. You can stretch monthly payments up to ten years, but there’s no pre-payment penalty.
MYTH #3: I CAN’T GET A BUSINESS LOAN BECAUSE I’M TOO SMALL
Or maybe you think the amount you want to borrow is too small. Or too big. Yes, size matters when it comes to small business loans for general contractors. But alternative lenders look at your ability to repay, not the size of your business. You should borrow the right amount for the purpose you have in mind.
MYTH #4: I’M DOOMED BECAUSE I HAVE BAD CREDIT
That’s true for bank loans, but not necessarily for other types of small business loans. The best news is that the right business loans can help rebuild your bad credit.
MYTH #5: NO ONE WILL TALK TO ME BECAUSE I DON’T HAVE A FANCY BUSINESS PLAN
You don’t need a hefty business plan, unless you’re talking to a bank. But you do need goals. And a plan to achieve them. Flying by the seat of your pants may have been OK when you started out. When it was you and a couple of guys and a truck. But you’ve grown beyond that. Or you want to. You have to be organized. And think strategically. That’s especially important in the construction industry, where cash flow is notoriously uneven. Smart borrowing can turn that boom-or-bust into smooth, steady growth.
Now that you know the truth about these myths you can approach small business loans in a different way. At United Capital Source, we work with general contractors like you every day. We know the industry. And we’d love to learn more about your specific business. That way we can help you get the working capital you need now. And the right financing to build your business in the future.