In a post-recession economy, the construction business has finally begun to pick up momentum. The US Department of Labor indicates that job growth has been steady over the last few years, with some areas of construction cautiously gaining. With around 27% of all construction laborers either members of, or represented by unions, there are still opportunities for small construction firms to make their way in this business.
WHERE THE CONSTRUCTION BUSINESS IS DOING WELL
Construction is one of those areas of business that is always going to be needed, particularly in regions where structural repairs, building upgrades, and new building are constantly taking place. Since World War II, there has been an explosion of urban sprawl, as residents of cities move away from the center and out into nearby suburban and rural areas. This can be attributed to a number of factors, including the availability of cheaper vehicles and lower cost housing developments. At the same time, there are efforts to rehabilitate or rebuild on city sites that have been abandoned, to improve the quality of life for inner city residents. Roads, public facilities, schools, and parks will always need to be maintained too.
Many construction firms get involved in government and commercial contracts, where the largest earnings potential and longer term projects are to be found. Projects in this area can include building upgrades or repairs, infrastructural and roadway construction, building or maintaining public facilities like schools and hospitals, and improving parks and waterways. Even small construction firms and women-owned construction businesses have the ability to bid on these
There are also many consumer-based construction projects available in every community as homeowners are building or upgrading homes. The recession led to many homes being left behind, and there are programs to rehabilitate them to be sold to new owners. Property values are still historically low in many areas, and so people are more apt to buy a home and fix it up. The need for skilled construction laborers and management firms is high.
CASH FLOW ISSUES IN THE CONSTRUCTION INDUSTRY
Despite these opportunities, there are some challenges to operating a profitable construction business, however. One of the major issues that occurs in construction has to do with cash flow. Typically, from the time a construction business bids on and wins a contract for a new project, and the time that it takes to receive payment for the project – many months can pass. It seems to be the nature of construction.
Other causes of cash flow problems include the need to pay suppliers and subcontractors in advance of payment coming in. For example, the contracting firm may need to have a certain number of skilled laborers who are licensed to perform the work, and this costs money to recruit and retain them for the life of the project. Vendors who supply the materials for the construction job require most of the money upfront too. Then there are special business licenses and permits to complete the work, state and county inspection fees, insurance fees, equipment to lease or buy, training, inventory to maintain, and more.
Very often, a construction firm can have funds tied up in multiple projects and loans, awaiting more money to come in. Serious cash flow issues can happen if a project gets delayed, even for a few days. Consider the unpredictability of weather, supply logistics, politics, and even project scope changes that can alter the costs of construction projects.
SOLVING CASH FLOW ISSUES WITH CONSTRUCTION SMALL BUSINESS LOANS
Any construction business can take advantage of the gamut of small business loans that are available. Even if there are credit issues or a history of slow payments, there is a loan program out there for everyone. Cash flow issues can be solved by having a portion of project funds up front. Low interest small business loans can also help to create a ‘cash cushion’ of funds that can be held in a bank to cover expenses and salaries. Once the construction job nears completion, payments can continue while the additional funds are added to the bank account. This removes the element of feast and famine from business operations.
Many construction company owners do not look forward to the prospect of filing out additional paperwork, because they have administrators to do this for them at the office. Thankfully, when it comes to applying for small business loans, United Capital Source makes the whole process easy and time-efficient. The waiting period is also short, depending on the type of small business loan program requested. This is not something that all construction finance companies can boast!
Other benefits of getting a small business loan this way is that there are zero credit checks, which means your construction business won’t see dips in credit scores. Imagine not being able to buy much-needed inventory or lease some equipment because of a couple of credit score points? That is embarrassing, so we process small business loans on other factors—such as length of time in business (at least 3 months), amount of monthly profits, and other less impactful criteria. There are advantages to managing your cash flow this way, as you know maintaining a good credit score in the construction business can pose as a challenge.
Repayment of small business loans for construction firms can also help with managing cash flow. Flexible repayment terms can help a small business owner balance the books while contractor payments trickle in. This is not something that a traditional bank offers, either. A financial firm that works with and serves small business owners should be viewed as a construction company’s best ally in maintaining adequate cash flow.