Construction finance experts

With the construction industry in crisis over COVID-19, business owners and field workers alike are nervous. Even in places where construction is considered an essential business, developers and lenders aren’t investing in a lot of new construction right now. Everyone in construction is afraid of what the future holds – and whether they will make it through to see the other side. We asked 6 experts in the field of construction finance for advice to help contractors and suppliers survive the coronavirus, and the looming recession. Not surprisingly, their advice boils down to one thing: CASH.

During COVID-19, cash is business critical

Cash flow is king in construction, and that’s never been more true than during the COVID-19 crisis.

“Cash is the number one concern for construction businesses right now,” says David Lee, a Business Development Officer with Evergreen Working Capital in Baton Rouge, Louisiana.

“Cash is the number one concern for construction businesses right now.”

David Lee
Evergreen Working Capital

When the future is so uncertain, making financial plans is incredibly tough. No one knows how long the quarantines and stay-at-home orders will last. As a result, everyone in the construction industry is trying to get their hands on as much cash as they can.

Once the federal government irons out the kinks, most construction businesses will likely be able to get up to $10 million in forgivable loans from the SBA’s Paycheck Protection Program. That will help a lot of companies meet payroll expenses and cover utilities.

But right now, contractors shouldn’t be relying on a single source of funding to get them through this mess.

Contractors should look for capital everywhere

If your construction business has been around long enough, you’ve probably survived some hard times. Chances are good that you know one or two ways to get cash when you need it.

Maybe you have a relationship with a bank loan officer you can call to open a line of credit when you need it. Or maybe you’ve paid your utility bills with a credit card for a few months so you could keep the cash in your checking account.

“Freeing up cash flow is more critical than ever.”

Mike Ross
Partner, Miller, Ross & Goldman
Mike Ross - construction collection expert

But if you limit your financial options right now, you might not have any left next month. Cash is drying up quickly for construction companies – and the contractors that take advantage of every opportunity are most likely to be standing when it’s all over.

Pursue collections on overdue accounts

According to Mike Ross, Partner at Miller, Ross & Goldman, the coronavirus has changed the cash flow game for construction businesses.

“The future of construction during and after the COVID-19 crisis is uncertain,” says Mr. Ross. He suggests taking a long, hard look at your accounts receivable (A/R). “Reducing your DSO and freeing up cash flow from distressed A/R is now more critical than ever. ”

Now is not the time to be shy about collecting overdue debt. The survival of your business is at stake. After all, when your customer delays your payment, you can end up carrying a substantial cost.

“Each day that you wait for payment is another day that you’re funding your customer’s business,” says Steve Rauch, President at Rauch-Milliken International, Inc. “Now is not the time to wait and hope that you’ll get paid. Contractors need to take steps to collect on overdue accounts, and fast.”

“Each day that you wait for payment is another day that you’re funding your customer’s business.”

Steve Rauch
Rauch-Milliken International, Inc
Steve Rauch - Rauch Milliken International

Of course, collecting on past due accounts doesn’t require being a jerk. Mr. Rauch will be the first to tell you: Sometimes, and especially during the coronavirus pandemic, collecting on past due accounts requires compassion. Your relationship with your construction customers is still important – no one survives a crisis alone.

“If the delinquency is because of COVID19 and you believe the customer will survive, then hold off placing for collections,” says Mr. Rauch. “But if the delinquency was prior to COVID19 their problems are probably getting worse, so you must act sooner than later.”

Use invoice factoring to free up cash

“In order to survive the current COVID-19 crisis, it is more important than ever to turn your accounts receivables into cash,” advises Frank Skelly of FK Construction Funding.

“It is more important than ever to turn your AR into cash.”

Frank Skelly
FK Construction Funding

For contractors that are unfamiliar with factoring, invoice factoring can help construction businesses turn their outstanding pay applications into cash.

In 2019, the average days sales outstanding (DSO) was 83 days. That’s how long it took the average construction company to get paid after they issued a pay application.

Factoring is different from collections, which typically require the account to be past due. Instead, factoring companies pay you for your invoice as soon as you issue a valid payment request. It can eliminate the need to wait for up to 3 months for that money to hit your account.

If work is still continuing on your construction projects, and you continue to submit invoices or payment applications, factoring may be a great way to get cash before funding sources dry up entirely.

Negotiate payment terms for more financial flexibility

Good cash flow management doesn’t just mean increasing the amount of money coming in. It’s also important to control the flow of money going out.

“The name of the game is flexibility and downside protection.”

Chris Doyle
Billd.com

“Nobody knows how long the coronavirus fallout is going to last,” says Chris Doyle, founder and CEO of Billd, a new company that provides 120-day terms for construction material with existing suppliers. “The name of the game is flexibility and downside protection.”

In the face of COVID-19, contractors would do well to try negotiating longer payment terms with anyone they owe money to. This isn’t limited to material suppliers, but could also include utility companies, banks, and other lenders.

“Maintain flexibility with how you purchase materials, pay for labor and spend your cash,” says Mr. Doyle. “Maintain downside protection through lien rights in the event a project you are working on is significantly delayed or funding falls through.”

Use mechanics liens to make your payment a priority

Getting paid in construction was already a long and difficult process before COVID-19. Now, project delays are throwing payments into question.

“The biggest risk is the uncertainty of the situation,” says Mr. Skelly. “Nobody knows for sure how long this is going to last nor do we know what the industry is going to be like once we get through it.”

Fortunately, construction businesses have a pretty powerful tool that’s already in their tool belt: the mechanics lien.

“If you are waiting for a payment on any of your construction projects right now, filing a mechanics lien immediately moves you to the front of the line to get paid,” says Michael Williams, Manager of Financial Services for Levelset.

Filing a mechanics lien is business critical during coronavirus. The contractors and suppliers who hold a mechanics lien claim on a property have an enormous advantage over their counterparts who adopt a “wait-and-see” approach. If the project funding dries up, and there’s a limited pool of funds to pay the subs and suppliers, who do you think is going to get paid first?

Mechanics Lien Recorded

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Don't wait and hope that you'll get paid when this all blows over. Get to the front of the line.

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Don’t forget about your financial future after coronavirus

Remember that scene in Forrest Gump, where Forrest and Lieutenant Dan survive the hurricane? While every other boat captain fled in fear, Forrest and Dan batten down the hatches. “Jenny” was barely floating by the end – but they were the only ones left to harvest all of the shrimp in the gulf. And they turned that opportunity into a shrimping empire.

“There are going to be huge winners when this ends,” says Jon Fry, CEO at Lendflow. “Those winners are going to be decided by those who are the most financially prepared to excel when this is over. This preparation starts now.”

The companies with the best cash flow are going to be in the best position to take on the most opportunities when they arise,” says Mr. Fry.

“Maintaining cash flow is going to allow you to maintain the people, equipment and processes required to keep your business operating at its best when it’s needed.”

“There are going to be huge winners when this ends.”

Jon Fry
Lendflow CEO
Jon Fry, construction finance expert

When you read the headlines every day, it’s hard to imagine a future after COVID-19. But Mr. Fry is right: that day will come.

The construction companies that act to take advantage of every cash option they have right now will likely be the ones who not only make it through the storm – but thrive in the growth that follows.

“It’s not only about being able to survive, it’s also about positioning yourself to thrive,” says Mr. Fry. “The companies who position themselves to grow aggressively in the aftermath are going to have a huge advantage over those who just barely scrape by.”

Put more tools on your financial workbench

“You have to know what’s on the table for you in order to make the best decisions, especially in this time of uncertainty,” says Mr. Fry. “If you have a solid understanding of the financial tools available to you, understand how they work, and know the amount of capital you have at your disposal, then you have far better context for making smart business decisions quickly.”

Right now, before the crisis gets any worse, contractors and suppliers need to take action.

Make a list of every financial tool at your disposal that you can use to get more cash, and then take specific steps to free up as much cash as you can.

hand holding money

Get Cash With One Application

Apply for SBA loans and other financing options - all with a single application. Get the cash your construction business needs to make it through the COVID-19 crisis now.

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With a single application, Levelset can help construction businesses understand the options, and connect you with financial partners to start generating cash. This includes SBA loans, factoring, collections, or even selling your existing mechanics lien claims.

If you feel pretty comfortable with the amount of cash you currently have in the bank, that’s great. Put your business through a recession stress test to see how well-prepared you are.