This article is part of a series sponsored by the guarantor of the Old Republic.
Early in my underwriting career, it was not uncommon to meet a construction company with a company owner who had recently climbed off a ladder or bulldozer seat. They know how to build and learn how to run a business back They started. It’s not uncommon for them to explain how they struggled in their first few years before they figured out that they were eligible for margin. In that era, construction business was less complex and entry barriers were lower. The reputation passed by word of mouth is greater than the number of capitals.
However, over the years, the failure rate of new contractors has only rivaled that of new restaurants. As a result, it is understandable that the guarantee company hesitated to consider a startup with a guarantee program.
Today, it is not small to be a major secured credit program. It is even more challenging if your business is a fledgling contractor at the start-up stage. Most guarantee prequalification processes are based on a reliable record of successful project completion. So, if your company is new and your track record is not yet established, how do you best represent your company when pursuing secured credit?
Start small and grow
It is not unreasonable to suggest that a new construction company should walk before it runs. Even if a new owner may want to do guaranteed work immediately, it is recommended to win and complete some private work before engaging in public work, as the administrative burden is lighter. It helps determine that a new company can successfully complete the contract to make a profit. Perhaps more importantly, earning a certain amount of income in a new business entity will generate actual financial statements rather than preparation for the exam.
Smaller bonds can also be secured based on the owner’s personal credit score. Almost all of these plans have significant limitations on the single and overall limitations of the guarantee plan. In addition, other underwriting considerations, such as the complexity of the scope of work and the duration of construction under the bond contract, may be limited.
The best thing a new construction company can do to strengthen its margin profile is assemble a team of consultants including guarantee professionals, a construction-oriented CPA and a construction-oriented bank representative. Everyone plays a role in helping you start a new company.
Provide good resumes for owners and key employees
When it comes to a closely owned construction company, the guarantor provides margin for those who own and manage the committed company. It is both right and truly crucial to represent who you are and your experience in construction. This is also true for the main employees who will become the backbone of the new company. A good resume for yourself and all your key employees must be part of the submission. It should detail what your education is, including any license or certificate you hold, your work company and the progress of your responsibilities, which leads you to strike alone to start a new company.
One of the ways you can get higher credibility through your guarantor is to have a personal financial statement that actually makes sense. Guaranteed underwriters usually face some handwritten numbers on the bank or guaranteed agent’s form, which are not close to balance and are obviously incomplete. It is not a problem to show that the guarantor is sufficient to obtain the bond. This is also a good representation of its own guarantor. Transparency is a feature highly valued by guaranteed underwriters.
This is personal
You should ask to meet with the guarantor representative and your business loan officer in person to tell your story. Part of storytelling is understanding your numbers. If you, as the owner of the company, have to delay your controller or accounting team in order to answer important financial questions about your balance sheet or project performance, it will not be willing to let underwriters who take the time to fully understand the information you provide.
Before the first guarantor meeting, you should consider the fight with the agent as an advocate for the devil. Be prepared to explain your experience and the experience of key employees and answer any questions that represent the team’s expertise. Also, be prepared to evaluate the guarantor representative you meet. The meeting should be as many interviews as the guarantor’s interviews. Do homework on a guarantee company and ask questions about their need for risk and what they have or can provide guidance to support your company’s growth and success.
Although digital and financial statements drive guarantors, it remains at its core a relationship business. You will share a large amount of personal and professional information with your guarantor. If you don’t care about the underwriters attending the conference, you will need to work with the agent to interview others.
You may be denied to obtain a guaranteed credit, but you should continue to work with your guarantor professional agents who can add value. If you are initially denied, you should ask what changes or improvements you can make. Your agent can help you hone your presentation and advise on the advantages and disadvantages of obtaining a guaranteed credit qualification.
You may need more than you can build your balance sheet and business plan that qualifies for an important assurance program. However, it is worth mentioning the viable scale of a new company and the short-term and long-term work that can be accomplished through a well-thought-out approach. With the help of your team, you can avoid the pitfalls caused by overly aggressive bond work.
Even if you have a great story, your personal finance approach will greatly reflect the guarantor’s perception of how you run a new company. Pay taxes on time. Keep the number of credit cards to a minimum and all payments are currently available. While this may seem obvious, make sure all your other bills, such as utilities and collateral, are paid on time. Speaking of obvious things no Run a tag on the casino. You will need a good personal credit score, but the entries in the credit report that make up the score will attract the attention of the guaranteed writers.
Have written business plan
You should also have a written business plan. People often put their ideas and abilities into paper, thinking it is a plan, but that is not enough to win the guarantor. Business plans need to be based on reality. It should include an inspection of the construction market part you intend to pursue and respond to the following:
- What is the public funding for the job you want to work on?
- What are the upcoming project opportunities?
- Who are your competitors?
- Why does your new company have room to compete?
- What are the realistic estimates of the market share you can capture over time?
- What specific steps are you going to take to win the business?
- How will the company manage the cash flow of winning projects?
The plan should include projections for at least three years of project pipeline and assess the likelihood of winning projects in the pipeline. You must be prepared to answer detection questions about your plans and resources.
One of the reality of starting a new company is to start from scratch. It may be frustrating to leave a construction company that is a big construction company, where the guaranteed credit is good and finds it difficult to get a margin for a new company. A new company rarely starts its business with a lot of capital. The amount of margin granted to the company will be extended to the company’s analytical net assets. So if a company starts using shoelaces, it will take some time to make its profitable operating eligibility for an important guarantee program.
During this time, companies need to use their debt wisely. Generally, raising funds by notes held by company owners is usually more beneficial than debt to financial institutions by starting capital. Obtaining a formal working capital line of credit through a bank also helps short-term financing; however, due to its short-term nature, it should not be a source of start-up capital for a new company.
The owner of the company may have to personally sign the working capital line of credit with the bank. While it might be easier to get out a credit card initially, the terms and conditions of a bank credit line are generally heavy. Additionally, while it may be moderate for you to qualify for a bank’s credit, bank relationships will be beneficial when you need a credit card that is larger than your credit card.
In the long run, building such a relationship will be quicker than later. The guarantor will need the same guaranteed and guaranteed credit lines as the bank. The owner of the new company must be prepared to personally compensate the losses of the guaranteed company.
Participating in the services of a construction-oriented CPA is essential to assembling components of a well-run construction company. Contractors use track and field hoes, cranes and scaffolding as tools for transactions. The guarantor uses the CPA’s pre-prepared audit or review of quality financial statements as one of its most important tools. Therefore, participating in a construction-oriented CPA can use appropriate schedules and disclosures in footnotes to create timely, high-quality financial statements, which is an important first step in creating a company. A good CPA will be invaluable to help new companies implement effective internal accounting and cost controls and to establish internal systems that will provide accurate internal financial information for the company’s management and temporary information.
Similarly, guarantors and underwriters attach great importance to transparency. This is a proven axiom in guaranteed coverage, and bad news spreads slowly than good news. If your internal accounting system fails to provide accurate, timely information when requested by your guarantor, the underwriter speculates whether it is good or bad news when it arrives. It’s even worse if your fiscal year statement for the CPA is not timely.
In addition to a team of construction professionals, a new company should also study memberships for national and local construction organizations. For example, organizations such as relevant general contractors (AGCs), affiliated builders and contractors (ABCs), or the Building Financial Management Association (CFMA) can provide a broader perspective and context. These organizations also provide resources, networks, and often formal training opportunities that can enhance the capabilities of newbies in company owners running their businesses. You should talk to other members of these organizations to gather their experience in starting a company and ask for market intelligence on choosing a good guarantor, a bank that is proficient in architecture, and a construction-oriented CPA.
After some careful preparation, starting a construction company can have a good relationship with the guarantor, an important part of its long-term growth and success.
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