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General Contractor Business Financing

General Contractor Loans

When people hear about construction workers and construction contractors, there is often a discrepancy on what a general contractor really is; especially because most people often mistake the general contractor for the construction manager. While both general contractors and construction managers are both integral to the coordinating and handling of projects, a general contractor typically has a few people working under him that are usually full-time employees, and enjoy the health and retirement benefits offered; construction managers typically do not have employees. A general contractor oversees the project and coordinates all of the suppliers, employees, and equipment which the general contractor obtains on a case-by-case basis. General contractors obtain work through a competitive-bid process. The competitive-bid process consists of an outside architect creating the plan and specifictions that is hired by the firm or individual wanting a job done, then selected general contractors are invited to submit blind, competitive bid proposals on the project. Once the general contractor is selected, the job begins. This means that there are plenty of expensive costs associated with this type of job, especially because of payroll, equipment, and regulation fees.

Information and Statistics on the Wholesale Distribution Industry

The engineering and construction industry has seen better times. The demand for construction has decreased since the sudden collapse of oil prices in 2015 that led to most energy companies slowing down, postponing, or simply cancelling major projects. In addition, continuing global economic instability has drastically effected the engineering and construction industry, especially for general contractors. Even before these recent issues, general contractors and the construction industry took a big hit during the 2008 financial crisis which has led to a continuous shortage of skilled workers in this field. General contractors in the construction industry are also facing growing competition from firms in low cost nations. While all of this has led to lower profitability from 2008 all the way into 2015, the engineering and construction industry is seeing positive growth with new trends emerging that are leading to many general contractors finding their niches. Through the emerging niche projects that people and companies are demanding today, many general contractors in this industry are remaining optimistic.

While general contractors have faced some difficult times in the last few years, statistics are showing that the industry is starting to see positive growth in the upcoming years. Construction and engineering is a major contributor to the United States economy, leading to over 650,000 employers, over 6 million employees, and nearly $1 trillion worth of structures each year. This industry also indirectly creates over 4,600 jobs due to supplying construction materials and services. These numbers are only going to continue to grow, leading to high demand engineering and construction jobs in the future, allowing more opportunities for general contractors to bid on in the near future. The trends and demands listed below rely heavily on changing practices and technology in the engineering and construction field. There are a lot of different changes that general contractors need to be aware of in the upcoming years, especially with the lack of available and qualified employees; however, they can be expensive up-front costs. With the help of different financing options, engineering and construction companies can easily make this transition into the diverse trends people are demanding today.

What General Contractors Need to Be Aware Of

  • Demand: The demand for newly built houses is decreasing, while the demand for renovations are skyrocketing. A recent study has shown that more than half of homeowners over the age of sixty years old have no plans to move into a new home in the future, but they are incredibly interested in renovating their homes. Baby boomers are fine spending the money to get whatever they desire done, but general contractors must remember that they are not as technologically savvy as the younger generations, which means they need more one-on-one guidance and examples. As a general contractor, if you are one of the few that deals with a millennial looking to renovate a home, focusing on estimates and the breakdown of spending costs are essential – since they are notoriously frugal.
  • Labor: The biggest issue general contractors are facing today is the overwhelming shortage of skilled laborers. Every single aspect of the engineering and construction industry has a specific skill set that is difficult to acquire, either through schooling or experience. This decline in skilled laborers originated during the recession when a majority of the employees left the construction and engineering industry, but never returned after the recession. While this is a difficulty faced by many engineering and construction companies, we are seeing an influx of younger people going into specialty trades and vocational schooling because of the ever growing rates of traditional college degrees. These specific trades are a hot commodity for general contractors who are looking for the top employees in the industry, leading to better pay for these employees. According to The Orange Country Register, general contractors are forced into “raising wages at the fastest pace in six years”. While this is great news for all of the workers in the construction industry, general contractors and managers are having difficulties reaching this demand. Reviewing options for additional financing could be the only answer. All in all, general contractors should expect to see an increase in the jobs available to bid on, however there is still the issue of finding skilled laborers. While general contractors are dealing with the decline in workers and the increase in demand for new technologies, reviewing the variety of financing options available is essential.
  • Modernization: The restaurant business is continuously booming – 76 percent of consumers are more likely to visit a restaurant that offers local and healthy options, as well as preferring a more authentic style and vibe from the layout and look of the restaurant; this includes catering to companies who are reaching the “going green” demographic. This goes back to the growing niche trend. General contractors focusing on catering to specific looks and ideals are heading in the right direction right now.
  • Certification: With the growing demand for green living, the demand for green buildings in both commercial and residential sectors is skyrocketing. Many general contractors are prioritizing getting LEED certifications for all of their laborers. In addition to this, some companies even cover school costs and fees for their employees. Certifications and degrees are not cheap, so finding alternative resources for funding is something to always consider.
  • Technology: General contractors have been slow to adopt new technologies and younger employees in the past; however, this is changing. New, more efficient technology has emerged, and many general contractors are advertising the use of new technologies to the jobs they are bidding on, making them more appealing to the client they are sending their proposals to. Building Information Modeling, or BIM, is a technology that has been around for a while, but has always been reserved for the larger firms. Now, all companies can have access to this advanced technology, especially with the help of financing options. The best, top of the line general contractors are implementing 3D printing to produce all sorts of items, as well as using drones to inspect sites. These are much more efficient than the old-school way of doing things, however these can be expensive costs.

Types of General Contracting Loans

Types Rates Terms Funding
Bank 6-10% 3-7 years 14-30 days
SBA 6-10% 3-7 years 10-30 days
Line of Credit 5-15% 1 – 3 years 7-30 days
Alternative 6-25% 1-5 years 5-7 days
 Cash Advance 1.16-1.55 3-24 months 1-3 days
Invoice Finance 1-2% weekly 1 – 90 days 1-3 days

General Contractor Bank Loans

Clearly the best option for general contractors are bank term loans and/or a line-of-credit. General contractor bank loans, while difficult to obtain, offer the best rates and terms of all types of business financing.

  • Rates: 5-10%
  • Terms: 1-25 years

SBA Contractor Loans

SBA general contractor loans are a way for contractor and engineers to obtain quality financing when they are unable to obtain a bank loan. The loan is backed by the Small Business Administration, and they agree to cover a larege percentage of the SBA lender’s losses should the borrower default.

  • Rates: 6-8%
  • Terms: 3-25 years

Alternative Contractor Business Loans

Alternative general contractor business loans are the next best option when tradtional financing is unavailable. Alternative contractor financing is easy to obtain, and funds much faster than bank financing — with funding taking place within days.

  • Rates: 8-25%
  • Terms: 1-5 years

Asset Based Loans For Contractors

Asset based contractor loans are an option for contractors and engineers to use their commercial real estate or personal real estate as collateral for financing. Asset based contracting lenders can provide 1st-3rd position on the real estate and provide up to 50% of the real estate’s value for funding

  • Rates: 10-20%
  • Terms: 1-5 years

Contractor Cash Advance

General contracting cash advance loans are not true business loans, but are the sale of the contractor’s future bank deposits in exchange for immediate financing. The process is quick, with approvals taking hours, and funding taking as little as 24 hours.

  • Factor Rate: 1.16
  • Terms: 3-24 months

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