| | | | | credit rating is too low to qualify for a loan. |
| There are myriad sources that construction | | | | 1. Joint venture. |
| companies can access when seeking funds for | | | | 1. Strategic investment. |
| working capital or to grow the business whether that | | | | 1. Private equity. Business service providers such as |
| is to broaden the geographical area, expand the array | | | | construction companies, IT services companies, |
| of services, or pursue significantly larger contracts. | | | | marketing firms, and business consulting providers |
| (Acquisition financing is not covered here.) I have | | | | (the list goes on) can only attract equity if and when |
| covered many of these sources in previous articles. | | | | they have a plan to expand regionally or nationally, |
| However, the question sometimes is, “What | | | | occupy a strong market niche or have successfully |
| options should I pursue and in what order?” For | | | | differentiated their company from their competitors. |
| construction companies, the answer lies below. | | | | Private equity funds typically need a 20% or greater |
| Follow these steps to procure financing to grow your | | | | expected return and without the larger expansion |
| business | | | | plans and scope, a construction firm or other business |
| | | | | services company will not provide the required |
| 1. Personal finances. | | | | returns. In addition, some funds do not like the lack |
| 1. Friends and family. | | | | of contractual recurring revenue inherent to the |
| 1. Banks. Typically a line of credit is what you’ll | | | | construction industry. You cannot attract equity and |
| need for your working capital and cash needs. If you | | | | raise capital for your ten-person firm. However, if |
| are purchasing equipment, materials, and other | | | | you have the management team, business |
| assets, consider financing from the seller (distributor, | | | | development acumen, sales strategy, and operational |
| equipment leasing vendor, or other supplier) and | | | | foundation to grow the business to a 100-person or |
| credit cards. For all other working capital needs – | | | | larger enterprise in a few years, private equity funds |
| payroll and other payments in advance of payment | | | | may be interested. |
| from customers – the line of credit should suffice. | | | | Construction firms tend to be small, local operations. |
| 1. Credit cards. Refer to the bank discussion. Use | | | | Therefore, most firms will not qualify for any equity |
| credit cards to purchase office supplies and other | | | | investment. However, if you want to make the leap |
| materials. | | | | from a small consulting type shop with historical |
| 1. Accounts receivable financing or factoring. If you | | | | revenue of $3 Million or less to one with $30 Million or |
| have contracts or purchase orders or proposals from | | | | more, you need to first create the vision and goals, |
| which you create invoices, and hence receivables, | | | | then the plan to achieve those goals . If necessary, |
| then accounts receivable financing may work well for | | | | engage business consultants and coaches who can |
| you. As mentioned in previous articles, this can be | | | | help you identify the company’s and your weak |
| expensive but is often a great short-term solution. | | | | areas and put the things in place that will lay the |
| Some receivable financing and factoring firms do not | | | | foundation to help you achieve your goals. |
| finance construction projects due to the reserves | | | | If you only reached $3 Million in all of the last ten |
| retainers often contractually required. | | | | years, and now you want to make the jump to $30 |
| If you are working on specific government contracts | | | | Million in five years, you must address the huge |
| or with a specific government sub-agency, there may | | | | credibility gap you are now burdened with. Utilizing |
| be dollars set aside to provide lower interest loans | | | | consultants and coaches will get you on the path to |
| tied to the receivables from the contract. Ask. | | | | raise capital sooner. These entities can also help |
| Investigate. | | | | you write a plan that incorporates the necessary |
| 1. Microloans. If the amount of money you need is | | | | changes. |
| low (under $25,000) consider microloans. There are a | | | | If you have been on the path to larger revenue from |
| number of microloan providers in the Atlanta metro | | | | the beginning, then you do not have the credibility |
| area and throughout the state of Georgia. | | | | gap with an equity source. However, you must |
| 1. Angel investors. If you have a rapidly expanding | | | | clearly understand and clearly communicate how you |
| business or have a plan for one, an angel may | | | | are different and how you will achieve revenues of |
| provide the equity funds you need to grow your | | | | tens of millions when the vast majority of your peers |
| business. An angel that is actively involved in the | | | | will never come close. This is not to discourage you |
| business may also serve as a guarantor for a bank | | | | but to simply help you understand what the |
| line of credit if your personal credit or your business | | | | investors’ point of view will be. |