Now more than ever, running a successful business requires establishing and maintaining healthy credit. This is especially true in the highly competitive and unpredictable construction industry. From financing equipment, to winning bids, to negotiating payment terms—healthy credit is the lifeblood of any construction business.
And while most business owners know the basics about personal credit, they’re so busy winning new business and managing projects that business credit may be the last thing on their minds. But you can’t afford to take a wait-and-see approach to your credit health. Being proactive is a must.
By evaluating how different parties—banks, vendors, suppliers, customers, and even competitors—use your credit profile, you can take simple steps to build healthier credit and move your business forward with confidence.
Talk to most general contractors and they’ll admit that not much separates one subcontractor or supplier from the next except for price. But what if two comparable subs come in at almost the same price? Who gets the job? Increasingly, it’s coming down to healthy credit.
Before hiring, a responsible general contractor will pull a subcontractor’s personal and business credit reports. They’ll specifically check to see if the sub has any lawsuits or liens for non-payment or non-performance. These types of negative hits on your report can automatically put you out of the running.
Even if the general contractor doesn’t proactively look at credit reports, a competing sub with healthy credit can advise the general contractor to pull reports on all bidders. What do they have to lose? They’ve built a healthy credit profile and are going to use it to their advantage. All other things being equal, the business with the healthier credit wins.
To top it all off—unlike personal credit—no one needs permissible purpose to pull business credit. Banks, general contractors, and suppliers don’t have to tell you that you’re unhealthy business credit affected their decision not to work with you—and you are none the wiser.
For most construction companies, winning a contract is just the beginning. Capital is usually needed upfront—to fund suppliers, pay employees, or invest in new equipment. To keep the cash flowing, it’s imperative to build a great relationship with your bank.
Bankers want to lend you money—it’s how they earn a living—but they’re only willing to take on a certain amount of risk. Build healthy credit and make it easy for your banker to bet on you. You’ll get access to higher lines of credit on better terms. Remember, everything’s negotiable. And negotiating is a lot easier when you know where you stand.
In addition to accessing capital to take advantage of growth opportunities, maintaining your business credit health can also help you weather the storm. Not long ago—because of the recession—a number of contractors had difficulty extending lines of credit or financing loans on new equipment. Businesses suffered, or in some cases failed. Staying on top of your credit health before business downturns will help ensure you stay well-funded through the rough patches and avoid derogatory items landing on your report. And these items can negatively impact your business for years to come.
Because of the recent uncertainty in the construction market, lenders have ramped up checking business credit to see how contractors weathered the downturn. Did their credit health deteriorate? Were negative liens or judgements added? Everyone suffered during the downturn, but lenders don’t care about excuses. They’re looking for professionals who take responsibility and work to make things right.
The recession and today’s new growth environment also highlighted just how quickly the opportunities and challenges change in the construction business. Tomorrow’s projects and equipment needs may look a lot different than today’s. To thrive, you must be able to adapt quickly. Regularly monitoring your credit health and maintaining a sufficient line of credit lets you quickly respond to changes and take advantage of new growth opportunities.
Just as you need to maintain a good relationship with your banker, the same goes for suppliers and vendors. These companies can pull your business credit report and base important decisions on it—like whether or not to float inventory. Contractors live and breathe on these kinds of accounts. With healthy credit, you can:

  • Negotiate better discounts that add up to significant savings.
  • Change financing terms and improve your profit margin.
  • Gain visibility, knowing you’ll have a consistent supply of materials.

A proactive construction business owner is on top of every job. They take responsibility for monitoring all their projects by visiting jobsites early and staying in touch with project superintendents on a regular basis. When they get the call to start, they’re ready; the materials are approved and available. Taking charge of your business credit should be no different.
By knowing where your personal and business credit stands, and having it regularly monitored, you’ll know you’re doing all you can to grow and protect your business—no matter what comes next. ■
About The Author:
Levi King is the CEO and founder of Creditera, a provider of business and personal credit reporting, monitoring, insights, and identity theft solutions to small businesses. Levi also co-founded Lendio, a matchmaker between commercial lenders and small business owners looking for financing. Prior to these ventures, Levi owned various “main street” businesses, and the difficulties he encountered finding financing and dealing with credit, led him to found Lendio and then Creditera.
Modern Contractor Solutions, December 2013
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