Do you operate a construction or contracting business? If so, you have no doubt encountered some challenges with maintaining your cash flow during the slower seasons. In this article from our partners at Lendio, guest contributor Andrea Preziotti looks at how to make the most of those slow months, plus how to understand and choose from some of the most popular funding options that keep businesses like yours going strong.
An increase in demand for construction services in smaller urban cities has sparked an upmarket request for residential housing and interest from real estate investors.
Last year saw a growth rate of 2.4% in construction spending, with a record high of $1.257 trillion across all sectors of real estate, commercial, and residential. This trend is good news for you if you run a construction business, since it’s likely to contribute in-market growth for contractors regardless of location.
In most regions, the peak season of operation for construction is nine months. When you consider that your core business is highly dependent on weather, companies must take a proactive approach to protect their assets and maintain operations year-round.
One consideration, as your customers retreat and business begins to slow, is to allow time to focus on incremental solutions to supplement the leaner months.
Make the Most of Your Down Time
The construction industry is one of the fastest-growing sectors for small business, experiencing a 19% increase in sales YoY. Anything you can do to sustain and grow your business is paramount.
Previously, we’ve looked at this from a few angles:
- 6 ways to get your construction business finances ready for 2018
- 10 ways to maximize winter downtime to grow your construction business
- Tips for marketing your construction business
In planning and growing your business, you may discover that your working capital won’t cover your operating expenses. In recent months, companies across several categories in construction work are waiting longer, on average, for customer payments.
Managing cash flow poses one of the most significant challenges for contractors, as you wait for client payments to come through and lack excess funds to pay your bills. If you find yourself in this type of situation, it could be time to explore alternate sources of working capital to keep your business operating smoothly.
Types of Funding Options for Your Construction Business
Fundbox partner Lendio examined the loan data history of the construction businesses it has helped fund. Of the thousands of construction loans Lendio has helped provide, over 90% of them were Lines of Credit, Term Loans, or ACH Loans.
In the construction business, you often don’t get paid until you submit your invoices during the later stages of a job, but you need access to funds so you can bid on other jobs, pay your employees, buy and maintain equipment, and acquire materials to keep your business moving in the meantime.
Because of this, lenders on Lendio’s platform look at more than your credit history or how much cash you have in the bank. To evaluate the whole picture, lenders often take into account bank statements, the jobs you’re currently working on, your invoices, and other information about you and your business.
Whether you are a new business working to bid on an early job or an established construction company trying to float some capital until a big payment comes through, there are several ways to supplement the working capital needs of your construction business.
Once you figure out how much money you’ll need, consider the following options:
- A business line of credit: The most flexible solution for all your business needs, a line of credit can help ease the burden of your cash flow, supplementing funds for payroll, restocking inventory, or funding advertising and marketing programs.
- Business loan: Money in the bank makes anything possible and taking out a business loan provides you with access to cash when you need it. It also helps you plan ahead so there’s less stress in planning to hire a top-notch crew or furnishing materials and labor for a last-minute build.
- Invoice financing: Completing the work on, or ahead of schedule can prove to be challenging when there is a delay in payment of services. In this case, consider invoice financing where you can advance your outstanding invoices for funds up front.
Seasonal downturns can significantly affect your construction business profits. Proactively developing strategies and considering funding options to implement year-round are solid steps you can take to soften the blow.