By Aditya Narula
According to a Kabbage survey of construction firms, 28 percent cited cash flow as the biggest challenge during their first year in business, outweighing finding new customers. As your business grows, the struggle to manage a positive cash flow may continue. Towards the end of a project, you may find yourself undercapitalized and in need of funds.
What are some ways I can better manage my cash flow?
Plan to pay your company’s predictable expenses, like quarterly taxes, marketing costs, and insurance premiums when big bills for your project are not due. Additionally, if you invested in capital equipment, you may be able to claim depreciation and other write-offs to minimize quarterly tax payments and free up cash. Work with your accountant or cash-flow management solutions to analyze your finances regularly and make small adjustments to smooth out the peaks and valleys in your cash flow. An easy place to start is taking advantage of upfront payment discounts and making sure you have access to funding for unexpected costs.
How can I get funding for my construction company?
You have several options for getting funds for your construction business. Depending on your needs, you may choose an SBA loan, an online lender, peer-to-peer lending, a line of credit, or asset-based financing. Be sure you evaluate the terms of the financing to ensure it’s best for your business need.
How do I know which type is right for me?
With so many options, it’s important to know the pros and cons of each. SBA loans and bank loans tend to feature higher amounts with longer terms, but underwriting requirements can be strict and you may end up taking more than you need. It can take a long time to process a traditional loan. Online lenders are faster and easier than bank loans—though amounts can be lower than traditional loans.
Do your due diligence to figure out what funding solution is right for your business, and there’s always the option to diversify funding sources. Many new solutions allow businesses to apply without fees, so there’s no downside seeing for how much you qualify.
How can I use my funding?
Working capital can help you take advantage of opportunities, cover day-to-day expenses, and weather slow seasons. From funding payroll to reinvesting in your business, having cash on hand can bridge gaps in your cash flow. It can also give you the edge when bidding for competitive projects. If you have enough working capital to start a job right away, you have the edge on your competition.
When should I consider an online lender over a bank?
Dennis Moloney of Best Restorations in Delray, Florida shared his experience.
“The thing with bank loans is that they don’t loan you money when you need. They usually offer it when you don’t need it,” he says. “Over a year ago, I applied for a line of credit online and the next day, I was using it for my business. That’s a big deal because sometimes, we don’t get paid until a job is done. It can stretch out for 4 to 5 months and we end up waiting a long time.
“It made life comfortable for me. In 14 years, I’ve never bounced a check or been overdrawn, and I want to keep it that way,” he continues. “I borrow from my online line of credit to make sure I’m always looking good. “
How does online lending work?
Online solutions cut out the paperwork and long wait times required through traditional lenders, and many provide more flexible access to capital. For example, my company, Kabbage, analyzes the real-time business data of companies to qualify them for lines of credit as $250,000 in minutes. Companies pull what they need, when they need it, so they never have to overextend themselves with credit.
How do I know the best decision for my business?
It comes down to your business needs, and in many cases both are suitable. If you’ve secured a multi-year project that will require funding beyond $250,000, most banks will provide a viable solution for you. Though you’ll want to put in the application soon as it can take time.
CLOSING THOUGHT
For businesses that have recurring needs to smooth cash flow—from payroll to equipment leasing—online lending solutions can give you a reliable funding solution that’s flexible so you know you have the extra support when business needs arise.
About the author
Aditya Narula is the head of customer experience with Kabbage. For more, visit www.kabbage.com.
Modern Contractor Solutions, October 2019
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