General contractor business loans are almost always able to be obtained relatively easily in most economic climates. During times of very high interest rates or economic recession, the ability for general contractor to receive a business loan is somewhat muted given that banks are little more conservative as it relates to real estate focused lending. However, most general contractors are able to remain profitable and cash flow positive in any economic climate given that people are going to continue to need repairs to their homes, offices, real estate investments, and other standing structures on an ongoing basis. As such, many general contractors – rather than taking out a business loan – will actually seek to obtain financing via a working capital line of credit. However, some individuals will still receive a business loan for the tangible assets that they need to purchase in conjunction with the general contracting business. The primary assets that are purchased by a general contractor include vehicles, construction equipment, furniture, fixtures, related equipment, and inventories of parts that are normally used in concert with providing general contracting services. One of the most important things to know when approaching a bank for a general contractor business loan is to provide them with an extensive list of the assets that are purchased using the capital sought. For highly established contracting businesses, most financial institutions are willing to lend 100% of the capital needed for a business expansion provided that it is going to be hard assets that are purchased with the financing.
The dynamic way in which a general contractor can produce revenues allows them to be very economically viable candidates for funding. First, general contractors have the ability to easily obtain revenues by providing general repair and renovation services to the general public. These typically are considered to be high gross margin services given that it is the direct cell labor that is principally involved with this business. Two, general contractors are able to produce substantial revenues if they operate on a speculative basis by developing homes and real estate buildings that will then either be rented or sold to third-party investors. The diversity in which a general contractor may produce revenues and profits does lend them to be good candidates for most types of business funding. Almost all general contracting businesses are also candidates for small business administration loans. This is primarily due to the fact that there are always many jobs that are created when a general contractor takes on larger scale projects.
One of the other things that needs to be discussed with the loan officer is whether or not the general contractor will be providing some services through the usage of subcontractors. This creates a little bit of a complexity as it relates to operating a contracting business. As such, this is something that should be discussed with them in regards to the gross margins potentially changing if subcontracted labor is used. However, the gross profits generated from each project – even with the use of subcontracted labor – is still substantial and readily provides a general contractor with the ability to satisfy any underlying debt obligation on a month-to-month basis. This is something that should be made clear within the business plan that is provided to the financial institution.
As it relates to the general contractor business plan, this document needs to feature a three-year profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page that features information that is standard to the general contracting industry. Each year, more than $2.2 trillion worth of construction and contracting services are rendered to the general public. The very large demand and huge part of the economy that makes up construction businesses allows them to easily expand in most economic climates. One of the key things to thriving within this industry is to be able to contract operations in the event of a severe economic recession or during times of very high interest rates where people pull back on new housing and new office development constructions. One of the things that we will continue to discuss throughout this website is the ongoing changes in the economy and how they impact certain sectors of the overall real estate market.
In closing, a real estate contracting business is able to almost always provide enough capital at the end of the month to pay back any principal and interest payments that may be associated with a general contractor business loan. These businesses are not going to change anytime soon even with advances in technology.