Four Steps Construction Contractors Need to Take to Secure Financing in 2023

by Sundip Patel and Sanat Patel, Avana Companies

In recent years construction companies have faced an abundance of challenges: higher wages, a strained supply chain, increased cost of supplies, and increasing interest rates. However, company owners should not be discouraged, construction companies cannot only survive in this challenging environment, they can thrive.

In order to thrive, construction companies must retool their financial house to take advantage of conventional, alternative, and/or government lending programs. In the spirit of spring cleaning, we will provide four steps you should put into place to ‘clean your financial house’ to secure the financing you need.

1.Get your financial house in order.

The first step you need to take is to get your financial house in order. Make sure records are organized, financial statements are on hand, history is documented, and you’ve updated your business plan. Updating your plan allows you to conduct an assessment of your business, which serves as the foundation for building and updating your strategy.

All businesses should document their story as a part of their business plan. In doing so, it's important to reflect on the elements that led to your company’s success, competitive edge, and ability to withstand economic cycles. By presenting a clear narrative of your story, your progress, your vision and your entrepreneurship, lenders should easily see what your company has done to weather past economic challenges and what your company is capable of doing. Creating a story allows you to control how your business is perceived by lenders and investors. You might consider telling parts of your story to prospective clients through your marketing materials too.

2.Organize your financing package.

The second step to put into place is to have a well-documented and organized financing package, as opposed to providing piles of documents that can lead to confusion and questions. Remember, everything you share with lenders speaks, so be sure to make a strong first impression! Beyond having organized historical financials available, thoughtfully prepare a budget and financial projections.

Be sure to articulate your strategy for repaying debts and highlight your track record of debt repayment in the past. This will improve your likelihood of obtaining funding.

When presenting your request to any financial institution during these economically challenging times, include your recession playbook. Within it, be sure you articulate your strategy for managing your company through economic uncertainty. It is essential lenders see your ability and willingness to adjust to market fluctuations, a stalled project, challenging customers, and everything in between.

3.Know and clearly communicate your financial needs.

The third is to be clear about the capital needs of your business. Every dollar you request should have a job. It’s OK if there are several jobs to be done. For example, some funds may be earmarked for the acquisition of a long-term asset while other funds may be earmarked for working capital to support an upcoming project. Regardless of the use of funds, the common ‘job’ for every dollar is to unlock growth. This includes growth to top line revenue and to your bottom line, the latter being the way a loan gets repaid. While it's crucial to effectively communicate your funding requirements to potential capital providers, it's non-negotiable that your financial projections include the impact of the requested funds. Show how the money will be put to work! Projections should showcase the business's capacity to handle debt, address potential repayment challenges, and identify factors that increase the likelihood of timely repayment. Beyond the narrative that supports the financials, you should be ready to verbally answer questions that arise during due diligence. When addressing questions, be clear, be concise, and be direct in your communication.

4.Research and identify your lender options.

The last step to securing financing is to seek the right lender for your needs. Banks may be a great option, but you might not be approved for a loan by a traditional bank. If this is the case, consider an alternative lender that understands construction companies.

Choose a lender that is transparent, one that takes the time to understand your needs and one who is focused on making the process as painless as possible.

Despite the challenges construction companies are facing, contractors big and small continue to be resilient. By getting your financial house in order, organizing your financial package, being specific about your business needs, and choosing the right lender, construction companies can lay the foundation for securing the financing they need to grow.

About the Authors

Sundip Patel is the co-founder and Chief Executive Officer of AVANA Companies, the holding company for ESG fintech platforms serving entrepreneurs and investors since 2002. Sundip oversees LendThrive™ and EqualSeat™ platforms for lending and investment, respectively, focused on supporting sustainable growth in communities. Sundip holds an MBA from the University of California, Irvine (1998) and is a licensed CPA and CMA.

Sanat Patel is the Chief Lending Officer of AVANA Companies, as well as a co-founder of the legacy company AVANA Capital. He has more than 25 years of experience in the commercial banking industry. Before AVANA, Sanat served in various commercial banking functions within Wells Fargo Bank, Citibank, and JP Morgan. Sanat holds an Executive MBA from UCLA’s Anderson School of Management as well as the Banking Degree offered by Pacific Coast Banking School, held at the University of Washington.