Construction: Make Sure Your Company is Prequalified!

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Construction small business lending kapitus

The arduous task of complying with risk management guidelines has come to the forefront for construction firms, especially subcontractors. In particular, the advent of prequalification software, which more contractors and agencies are using to keep a database of prequalified construction firms. This software makes it easier for contractors and government agencies to launch invitation-only bids for new construction projects, thereby emphasizing the need for small construction firms to make sure they are in those databases. 

This news is especially important for smaller construction companies, as the new housing construction market remains hot and the federal government is poised to issue a bevy of new contracts for specialized construction projects due to the passage of the Infrastructure Investment and Jobs Act.

If you’re a small construction company, here are some tips on how to make sure you are included in construction firm and government databases of contractors as a pre-qualified company and stay in the running for new projects.

Up Your Marketing Game

An upcoming surge in federal contracts and the continued strong demand for new housing will benefit the construction industry for the foreseeable future. Basic marketing techniques still apply: you need an optimized website; great content, a strong social media presence in which you target the exact audience you wish to do business with and monitor your web traffic and responses, among other things. 

You also most likely need to do more outreach to specific contractors, especially in your vicinity, and government agencies seeking to bid out contracts to make sure your company is on their radar. Setting up email pitches and sequences for potential clients, for example, could go a long way in making sure people know about your company. Do some digging to find out who the decision-makers are at various government agencies that may outsource construction projects (it could be your local municipality, a state government branch or a federal agency) and contact them to make sure you are on their radar screens.

IAmBuilders.com has a great web page on how to market your construction firm, and the video below from small business coach and influencer Mike Claudio also gives great tips. You should follow as many of those steps as you can to make sure your company is visible to the public. 

Make Sure You’re Prequalified

The task of prequalifying is complicated, especially now that it’s time for what construction industry experts call the “Great Expiry” – the period between April and June when most pre-qualifications expire and must be done again. The steps that need to be taken to prequalify are involved, but necessary. Clients and contractors want to cut down on the risk of project delays, shoddy work and going over budget. 

As the owner of a construction company, you must show potential customers and contractors that:

  • Your company is licensed for the particular job. Getting licensed for a particular project isn’t difficult in most states. Double-check with the customer or the contractor whether the project requires licensure. 
  • Make sure you have the proper experience. Obviously, different construction projects may require different skills. Constructing a new modern office complex or home for a private customer will require different expertise than, say, building or repairing a road or a bridge for a state or local government. Make sure you have experience to bid on a particular project, and if your company does not, make sure you hire workers who do have that experience. Having experience will give some reassurance to the customer or contractor that there won’t be any unforeseen delays or shoddy workmanship.
  • Make sure you are following proper safety protocols. This sounds simple but can mean the difference between winning and losing a bid. Make sure you are compliant with the federal Office of Safety and Health Administration’s (OSHA) safety guidelines for construction projects. This means taking steps to prevent fires and explosions, accidental falls and other injuries. 
  • Demonstrate that your company is financially stable. Has your company ever filed for bankruptcy protection? Do you have the assets to pay your workers adequate compensation to ensure that they won’t walk off the job due to low pay? Ensuring this will indicate to your customers that your company has the resources and inventory to complete the job without going over budget.
  • Demonstrate strong payment history. For any construction project to go smoothly and without delays and extra costs, it’s important to know that subcontractors and suppliers will get paid on time and in full. Legal claims for unpaid construction work, called a mechanics lien, can significantly delay a project. Also, don’t forget that the Little Miller Act requires that prime contractors post a payment bond backed by a surety company that guarantees the finances necessary to complete a construction project. Make sure that this bond is lined up when you apply for a project bid, be it with a private customer or government contractor. 
  • Get your financing lined up. Using financing to ensure that your construction company can complete a project is not necessary for prequalification, but it can ensure that your company is ready to take on a project. Equipment financing is a form of lending that can ensure you have the most modern construction equipment to complete a task. You can also use purchase order financing to make sure that your suppliers get paid on time without restricting your cash flow, and a line of credit can make sure your workers get paid on time. You may also wish to use invoice factoring in case your contractor or customer is slow to pay those invoices. 
  • Respond to Customer Feedback! As we are now living in the “Feedback Economy,” most consumers (including your future clients) will check Google Reviews, Angie’s List, Yelp and other apps in which customers provide feedback on their experiences with businesses. If your construction business has been reviewed, make sure you respond to those reviews. Negative reviews are especially important to respond to – when you respond to them, thank the customer for their feedback and state clearly that you’re making the necessary changes to improve your business based on their feedback.

Get to Know Prequalification Software

Being qualified for a construction job and letting the world know that you’re qualified are two different things. With the increased popularity of prequalification software, you need to get to know what these programs are looking for to be included in bids. Some of the most popular prequalification software packages out there being used by construction firms include:

These software packages emphasize slightly different aspects of the prequalification system. For example, FAST Builder focuses a lot on scheduling and pricing, while ConsensusDocs focuses more on contract details and design. Chances are a contractor or client is using one of them to build a database of qualified construction companies for various projects, so it’s important to learn the best ways to respond to each one so that you can put your best foot forward at bidding time. 

Don’t Miss Out!

The construction industry is set to be in even higher demand over the next few years as more government contracts will be coming out for bid. Make sure your company is visible, qualified and ready to go when projects are put out for bid.

Vince Calio

Vince Calio

Content Writer
Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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Best Loan Options for the Trucking Industry

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Trucking small business lending Kapitus alternative financing

The COVID-19 pandemic exacerbated problems that had already existed in the commercial trucking industry for years as demand for delivered goods skyrocketed in 2020 and 2021. Those problems included issues surrounding compensation, hazard pay, COVID-19 vaccine mandates as well as a general shortage of licensed truck drivers. 

While it may at first seem counterintuitive, these problems make 2022 and beyond a great time for trucking businesses to finance the expansion of their fleets and hire more drivers. Consider the fact that the demand for delivered goods, especially imported goods, will remain strong. 

Also, supply chain disruptions have created an urgent need for stronger transportation systems for consumer products, and late last year, the Biden Administration announced a program aimed at increasing the number of licensed truck drivers in the country as part of the $1.2 trillion Infrastructure Investment and Jobs Act. 

Kapitus trucking small business lending alternative financing

Kapitus is now offering long-duration loans specifically tailored to trucking companies.

These are, in fact, just some of the reasons Kapitus recently expanded its criteria for lending to trucking companies by offering equipment financing to purchase new or used commercial trucks via long-duration business loans with competitive pricing. 

“When we get filings in, I would say that nearly 70% of the filings are trucking-related, whether it’s just box trucks for local deliveries, trailers and long-haul trucks,” said Kevin Morello, manager, asset-based finance for Kapitus. “These are comfortable deals [for lenders] to make because long-haul trucks are such strong cash-flowing assets.”

What are Your Loan Options?

There are several financing options for trucking business owners seeking to expand their fleet or buy their first truck. One of the advantages for trucking companies is that lenders generally have a positive view of commercial trucking companies – especially the big semi-trucks – because the truck itself is a cash-generating asset, and if you do take out a loan for a truck, the vehicle itself becomes the collateral. The supply chain disruptions still being felt have also made trucking services in high demand, and therefore trucks are considered “business essential.” 

Like with any other lending, the type of financing you get to purchase either a used or new truck depends on your credit score and how long you’ve been in business; but there are a large number of traditional and alternative lenders. 

That said, your financing options when purchasing a truck vary:

#1 Finance Directly Through a Vendor

Much like the way you would purchase a car for your personal use, you can purchase a truck through a dealer, who would then search for financing options with several different lenders for you. Traditional banks such as US Bank, Wells Fargo and Bank of America offer lending programs specifically tailored to trucking companies. 

These loans typically offer low-interest rates and long durations, but don’t be surprised if you’re turned down. Traditional banks typically demand down payments which can be quite large, as an average-priced new semi-truck can cost between $100,000 and $200,000. They also have stringent requirements such as credit scores at least in the high 600s, minimum annual revenues and multiple years in business. While lenders still have an overall positive view of trucking companies, they are starting to see them as being a bit more risky in the waning days of the pandemic, as over 3,100 trucking companies went belly up at the height of COVID-19.

CDC/504 Loan

This loan is backed by the US Small Business Administration and is tailored for the purchase of fixed assets. It provides financing of up to $5 million and a term of between 10- to 20 years, and usually offers rates typically pegged to the current market rate of five- and 10-year US Treasury notes. 

These loans are offered through Certified Development Companies (CDCs) and the assets must be used to promote business development within a particular area and increase employment. Like traditional banks, this type of loan carries stringent requirements such as a high credit score and multiple years in business. If you qualify , these loans can be an excellent source of financing for a new or used commercial long-haul truck.

Alternative Lending

If you’ve been turned down for a loan by a dealer or traditional bank, you’re probably going to have better luck with alternative lenders – financing companies that fall outside the traditional banking sphere. Many of these lenders operate online and offer the same range of financing options as traditional banks, often with fewer requirements but at a higher cost of capital. Alternative lenders are just as legitimate as traditional banks and typically can turn around a loan for you in less time than a traditional bank. 

If you choose to go with an alternative lender, be careful, as there are many of them out there. Do your research on which ones are most popular, legitimate, and offer the most competitive rates. Some may make many appealing guarantees, but with any product or service that you purchase, it’s always best to keep that old adage in mind – if it’s too good to be true, it probably is. 

Equipment Financing

Since commercial vehicles are equipment, why not investigate equipment financing? If you don’t meet the strict requirements of traditional banks, alternative lenders may require a slightly lesser credit score, usually require less paperwork, and can probably turn the loan around for you more quickly than a traditional bank. 

Additionally, alternative lenders often don’t require a down payment when it comes to equipment financing. For example, according to Morello, Kapitus sees roughly half of our equipment financing customers for commercial trucks require a down payment depending on credit score and time in business.

The downside of equipment financing for commercial trucks is that alternative lenders – much like traditional banks – often require a certain amount of time in business. Put simply, it will be easier to get financing to add to your existing fleet of trucks than to obtain financing for your first truck, since lending to an established company will always be deemed less risky than lending to a first-time buyer.

“With trucking it’s challenging to finance your first truck,” said Morello. “So whenever customers come to us and it’s an owner-operator, or it’s a sole proprietor, that’s way more challenging than when you start building out your fleet. It’s also super rewarding when people come to us when they have a fleet of two or three or four, and then we can finance more than one vehicle for them.” 

Business Lines of Credit

While commercial trucks typically have long shelf lives – like any piece of machinery – they need regular maintenance and repairs. This is where a business line of credit from either a traditional bank or an alternative lender will come in handy because when a truck breaks down due to wear and tear, your company will lose money fast. 

A business line of credit can provide immediate cash when you need it to make emergency repairs and maintain a strong resale value for your truck. Like with any financing, it’s important to shop around to see which lenders offer the best terms and easiest access to capital.

Know Your Options

The trucking industry is in high demand right now and that probably isn’t going to change in the foreseeable future. If you’re seeking to expand your existing fleet or purchase your first truck, it’s important to closely examine your financing options and research various lenders available to you. Getting the best rates and terms on your loans may be just as important as gaining new clients. 

Vince Calio

Vince Calio

Content Writer
Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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