During the most recent recession, many contracting companies saw both substantial decreases in the amount of jobs they could compete for as well as needing to bid lower than they normally would in order to actually secure work. This resulted in lower profits per job as well.
In contrast, many contractors today report that they are receiving more requests for bids (and jobs) than they have the capacity to take on.
Taking advantage of the resurgence of available contracts often requires a business owner getting his or her hands on more capital, but there are special challenges that can come into play when financing a contractor:
- Small contractors typically find it more difficult to secure financing than other businesses. Lending institutions are cautious about providing support in industries such as construction because of the huge swings in company profits between "good times" and "bad times.
- With the U.S. just now climbing out of the worst recession in 80 years, a substantial percentage of contracting firm owners have had both business credit issues and personal credit challenges over the past several years.
While financing a contracting business can be a real challenge, here are 5 reasons contractors need capital today, and solutions:
1. Equipment Financing for Contractors
During the recession, many contractors either sold some of their equipment to pay bills, or had to relinquish ownership due to not having the funds to make payments.As contracting companies get busy again, much of the work being done requires expensive equipment. In the short term, equipment rental can be a good solution. However, after a few months of paying rental fees, it’s also common for contractors to find that it makes much better business sense to buy equipment.
Consider: While a contractor can buy a slightly used piece of equipment such as a skid steer for around $20,000, renting that equipment for a year can easily run $1,800 per month.
After 12 months of rental fees that usually transfer zero ownership rights to that equipment, the amount spent equals the money that could be used to buy the equipment.
In many cases, equipment leasing can be a good option for contractors, but often, contractors find they cannot lease equipment for a few reasons:
Many contractors deal in a lot of cash and their business' true cash flows are not reflected on the bank statements or tax returns evaluated by a financing company.
Most equipment leasing companies consider average daily bank balances when analyzing a potential deal and are uncomfortable lending to businesses that don't have at least several thousand dollars in their bank account at all times.
Most equipment leasing companies won't extend terms to business owners with a credit score below 650.
There are ways to bridge that gap. Financing from Zion Finance - Lend Up requires a 500+ FICO score. They’ll also lend companies up to 2X monthly revenues.
2. Acquiring the Funds Needed to Complete Jobs
When working on a large project, many contractors are waiting on funds that may not come for 30 days or longer, but need to pay for materials and labor upfront.Waiting to be paid on a job (known as "accounts receivable" or "AR") can put serious strains on a company's cash flow, and the more jobs a company takes on, the larger the outstanding AR becomes.
While many contractors try to secure what's known as "invoice factoring" or "accounts receivable financing" almost all factoring companies refuse to work with many types of contractors. They also tend to be very selective about who they work with in the contracting trades for those subsectors in which they will extend financing.
The reason factoring companies don't like contractors:
The nature of most contracting trades is that many jobs are completed later than originally planned due to unforeseen circumstances such as weather, permitting, and other challenges.
Because almost every job is unique, the ultimate amount paid is often different than the original estimate. This can complicate the terms of the financing and can lead to pricing and billing disputes.
Receivables financing companies don't like "customer concentration". Many contractors have one or two big jobs at a time, which increases the risk of a financing arrangement. If you factor one large invoice, and the customer doesn't pay, that leads to heavy losses for the factoring company. Conversely, having 100 invoices and one customer who doesn't pay is a more favorable circumstance to financers.
A working capital loan can very likely be a suitable alternative to factoring companies for many contractors.
3. Weathering Slow Seasons
Even with construction booming, contractors in certain areas of the country will more than likely face slow periods simply due to weather. In the northern states, many contractors such as roofers and pavers spend several months with little to no work simply because the climate is too "wet" to reasonably conduct business.For contractors who anticipate a dry spell, securing financing during a peak season (when the bank statements look fabulous...) can be a great strategy to avoid unexpected shortfalls. Much of the small business financing on the market consists of short-term, high-payment solutions that are incompatible with cash flows.
A much better solution is Zion Finance - Lend Up's long term loan, which offers lower, one-time-per-month payments with no prepayment penalties. This can be a great benefit because the loan can be repaid (or substantially paid down) once a busy season starts up again.
4. Financing an Advertising Campaign
If a contractor is totally booked due to word-of-mouth, that's the ideal situation. Most contractors, however, will usually have to supplement referral business with some form of paid advertising.Advertising is a necessary expense, and if a contractor fails to pay for advertising during times of lower bank balances, that can lead to a vicious cycle. In part because less advertising can lead to less customers, which can result in further declines in revenues and profits.
Contractors that rely on paid advertising for a substantial percentage of their customers may find that the only thing worse than paying a large sum of money for advertising would be not paying a large sum of money for advertising. This is one reason why the contractors who find themselves in such a predicament would be well served securing a business loan to keep leads and contracts flowing in.
5. Paying Off Old Bills
One of the most important reasons today's contractors have trouble securing the financing they need is due to old problems left over from the recession.Many contractors have tax liens or collection accounts outstanding from the 2007-2011 period when there simply wasn't enough money coming in to their businesses to pay all the bills.
The problem is that even with business back on track, most lenders will not extend credit to any company with an outstanding amount of derogatory instances, in a company owner's personal or business credit history.
Many contractors may find that they can fix this problem and rebuild credit with Zion Finance - Lend Up's term loan, as Zion Finance - Lend Up's business term loan features:
• Reporting of on-time payments to both personal and business credit bureaus to improve your credit score
• Terms of up to 10 years to keep payments manageable
• Loans available even with many past problems
• No restrictions on any type of contracting
• Loans available even if you are a sole proprietor
• Same-day or next-day funding with minimal documentation
Funding through Zion Finance - Lend Up can often lead to a much easier experience than many other business products, as the application process takes minutes and approvals happen quickly so that you may focus on making money as opposed to jumping through the hoops required for many other business-funding products.
WE CAN HELP YOU WITH A QUICK LOAN!
Do you need a quick loan today? Zion Finance - Lend Up can help you with the loan you need, we offer personal loans and loans for business development. To apply e-mail: zionloanfirm.ltd@aol.com
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