Faced with an irregular flow of work and thin margins, construction businesses survived the recession by cutting back on expenses and staff. They chose to lease rather than purchase equipment and paid down higher interest debt. While running a tight operation is paramount, business owners also need to be prepared for growth when new opportunities arise.
The economy and the construction industry are still under stress, but signs of companies pursuing infrastructure projects exist. The stream of construction projects is expected to increase through 2012; however, the pace will depend on a number of factors. Government funding, politics, regional recoveries and decisions about how long repairs or replacement can be deferred are all determining factors that will impact the number of new infrastructure projects this year.
There’s no doubt that much of the country’s infrastructure requires immediate or near-term repair. While some regions of the country will get projects under way more quickly than others, one thing is clear: Construction business owners who are prepared will have an advantage when it comes to securing financing for future projects.
Secure a Solid Bonding Company
There are two critical reasons to have a solid bonding relationship: Public projects require bonding and bonding capacity increases the number and size of available opportunities. Bonding should be an advantage, not a limitation. As businesses seek larger projects, it’s important to think ahead and ensure current and future needs are well within the upper limits of bonding capacity.
One key ingredient of a successful bonding relationship is good communication. The bonding company should have a deep understanding of the contractor’s business and be able to help assess and price a job. In turn, the business owner should be able to discuss any concerns and work cooperatively to address any issues.
Securing bonding also presents a great opportunity to start getting the business’s finances and operations in order because they’ll be evaluated at every step of the process. Keep in mind bankers and specialty equipment leasing and financing partners can help organize a firm’s balance sheet in advance of the bond underwriting process.
Develop a Strong Banking Relationship
Although financing is available, lenders are understandably cautious. In general, they look for companies with a history of bidding successfully on public works projects, a broad geographic base so they do not depend on a single local economy and proven management experience that served them well during the downturn.
The best time to establish a banking relationship is before it’s needed. This is particularly true when a firm is relying on its bank to be flexible as it prepares to bid on projects, including larger jobs.
Regardless of the type of lending, from working capital to a line of credit, the banker should ask tough questions. A banker should be dispassionate, looking at the management team and work crew, equipment or access to equipment, and how the company stacks up in terms of experience and expertise for the particular job.
A banker wants to be sure the company understands the cost and scope of the work, as well as prices it accurately with a good margin included. The big question for the banker is not whether the company can win the bid; it’s whether it can successfully complete the job and meet its financing obligations.
Partner with an Equipment Leasing and Financing Specialist
Because gearing up for new opportunities almost always includes buying or leasing equipment, business owners should prepare by securing the right equipment with the most favorable terms. Having financing in place helps determine the actual cost of a project and adds a layer of certainty for the bonding company and the bank.
Equipment leasing and financing specialists add value by being flexible and offering a wide range of options, making it possible for construction businesses to compete for more jobs. Options may include leasing or buying, different types of financing, leasing with an option to buy and repayment choices, such as the ability to pay seasonally. They also can structure leases, sales or financing to maximize tax advantages.
Overall, an equipment specialist can help the business run more profitably by creating a tailored solution. In some cases, it may be cheaper to lease and maintain new equipment rather than own and maintain older equipment. In other cases, it may make sense to lease with an option to buy. Obsolescence and new regulations also can factor into the decision.
An equipment specialist can advise on tax considerations, from triggering the alternative minimum tax to the effects of depreciation, as well as help business owners take advantage of low interest rates by refinancing.
Cautious Optimism
While the economy and the construction industry haven’t turned around significantly, infrastructure projects represent an opportunity for work. Companies that are emerging from the recession leaner and tougher are in a good position to compete. To maximize their chances, contractors must get their bonding and financing in place well ahead of time.