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Construction executives face a myriad of risks every day.

Unforeseen jobsite conditions, project snags and financial management challenges are risks that test the fortitude of even the most capable, experienced contractor in the best of times. 

So how does a construction executive or business owner maintain and preserve creditworthiness in the face of a pandemic that is wreaking havoc on the economy?  

It’s no easy task, and there is no one correct course of action. Every contractor’s unique situation dictates what steps can preserve the company’s financial integrity.

There are four common challenges that can negatively affect creditworthiness: liquidity, borrowing for working capital, positive cash flow and the workforce.


Liquidity is defined as a contractor’s ready access to working capital that can help meet immediate cash needs. In tough times, such as the current COVID-19 pandemic, the importance of liquidity increases. 

Until clear skies can be seen, a prudent contractor will proactively preserve its cash on deposit now and creatively bolster its liquidity position. Preserving cash may require putting off any expenditure not critical to keeping the company afloat, such as vehicles, computer equipment, office perks and bonuses, to name a few.

Actions like distributions of cash to shareholders or borrowing money from the company should be discouraged during this time. Unless distributions are to fund the individual tax obligations for pass-through tax entities (like a subchapter S corporation), contractors are better off to minimize or eliminate this activity for now. 

Contractors also can investigate options to extend payment deadlines with creditors and lenders. Unless the question is asked, it is simply impossible to know if options are available to help preserve cash or simply improve cash flow.

Borrowing for Working Capital

A contractor that has not already taken advantage of the U.S. government’s Paycheck Protection Program (PPP) loans should be ready to move on a moment’s notice about any new allocation of additional PPP funds. 

Contractors should not discount the potential access to capital that may be hiding in plain sight. For example, equity in real estate (personal or business) or equity in equipment could potentially be tapped for emergency access to cash. An already-established bank line of credit for working capital purposes could be a lifesaver.

Trying to establish a new line of credit in the midst of a pandemic might prove to be an impossible task. If a contractor is successful in picking up a lucrative project, it may be prudent to pursue a project-specific line of credit with the bank. Such a line of credit could allow the contractor to preserve cash on hand for other purposes rather than for mobilizing and kick-starting a newly acquired job. A banker may be more willing to lend money knowing there is a cash flow source to service the debt.  

What all of these options have in common is that they require the business owner to change their mindset about historical methods of cash management and access to capital.

Positive Cash Flow

Equally as important as liquidity during normal economic conditions, but especially during this pandemic, is good positive cash flow. 

It is not uncommon for certain classes of contractors to operate efficiently on good cash flow despite having marginal or no liquidity or working capital. Thus, a good financial manager will investigate and pursue all available cash flow tools to help maintain financial integrity of the company.  

Contractors that historically may have been passive to the collection of accounts receivable and retentions receivable may need to become more aggressive in collecting money owed to them.  

Additionally, contractors should never assume that project owners will be inflexible on the topic of retention percentages. Negotiating a 5% retention on a job when the usual retention may have been 10% can have a huge positive impact on cash flow. Further, owners may be willing to lower or eliminate project retention once a certain level of completion has been reached. 

In extreme cases of impending cash flow shortages, a contractor  may look to renegotiate terms of debt to mitigate the impact of cash flowing out of the company. The contractor should be mindful, though, that some lenders and surety companies will frown upon debt renegotiation. If a contractor pursues this avenue, it should be in full disclosure, in advance, with the surety underwriter. This is so that the contractor can make informed decisions about financial matters and how they may, or may not, have negative consequences on the company’s surety credit.


Many construction trade magazines are reporting that construction starts are down and therefore backlogs are beginning to thin out. Contractors should be wary to not wait too long to manage levels of overhead and field staffing in response to lower backlogs. As mentioned above, capital preservation should be at the top of the financial manager’s list of goals during this pandemic.

Unless a contractor has a PPP loan that would allow them to keep staff in place during the downturn, they should not wait until it is too late to react and make a difficult decision. Many contractors have felt that it is honorable to keep employees on when there is little or no work coming in the doors. But if the contractor ultimately fails, there will be a much larger domino effect of a business owner losing his life’s work, a surety that may have losses, a bank left with defaulted loans, as well as subcontractors and/or suppliers left with unpaid debts.  

Arguably, in almost every case, the short-term pain of actively managing overhead and staff is far less than the potential impact of a contractor failure that a business owner may never recover from. Contractors also should be careful not to chase, and load up on, low-margin work in an effort to cover overhead during the pandemic. 

That’s not to say that a contractor can’t make a calculated decision to employ this strategy and come out of it on the other side no worse for wear. But financial managers and project managers should take the unknowns into consideration when attempting to do this. With little margin in backlog, a company with a stressed balance may not have the financial “backstop” to survive one or more losing jobs.

In addition, there’s the age-old problem of a contractor filled up to capacity on break-even work when the marketplace turns and margins start to increase. That is not a position any contractor wants to be in.

These suggestions give contractors strategies to navigate the murky waters this pandemic has caused. What cannot be stressed enough is that contractors should seek help, advice and support from every source available to them. The vast knowledge accumulated by accountants, lenders, surety executives and bond agents should not be underestimated or underleveraged by contractors. 

Financial managers and/or business owners considering any of the above options or others should make a point to discuss them with a surety or banking professional ahead of time to make their decisions better informed.  


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