Small businesses are the bedrock of communities throughout the nation. They provide opportunities for entrepreneurs and rewarding, meaningful jobs for residents.
Currently, small business owners are facing challenges concerning a predicted inflation rate increase for 2022 and competition for resources and staffing. In the construction field, supply chain disruptions are causing even more problems in the residential and commercial areas.
Nevertheless, while 2021 was tough for some, there are ways around these hurdles of which prospective, new and experienced small-business owners in the construction field should take advantage.
Create a multi-year business plan
It is well known that most small businesses go under during the first year after opening. Although there are a number of factors that can contribute to this, the majority of these failed businesses share one thing in common: They don’t expand their business plan beyond the 12-month mark.
To split from the competition, business owners need to create business plans that forecast at least two to three years down the line. Most small businesses do not make money in the first year, so the business plan needs to include sufficient funds and lines of credit to help operate until profits begin to roll in.
Make intelligent financial decisions with rates and savingS
Although this might sound like a given, monitoring rate trends and investing extra savings into rainy-day projects can give the business the extra support it needs.
Current rates for loans on equipment and office buildings are at a historic low. Pulling the trigger is a great way to set long-term financing in place. Don’t wait too long on the sidelines to move forward before rates increase.
If the business owner plans to make improvements or expand in the future, having extra savings on hand can keep them from taking out an additional loan, which would cost the owner more money in the long run due to the interest on the loan.
Know when to look for a business partner
Time and time again, small-business owners struggle with delegation. This makes sense, in a way, because a new business needs to be careful with the amount of money that is being spent.
Rather than trying to do too much at once, business owners need to have the flexibility to take on a partner if necessary. If operations are running smoothly, small-business owners can still benefit from financial partnerships—especially if the business is not in a solid position to go through an acquisition.
Be sure to know if the investor has had experience with the construction industry. Make sure they have read the business plan and understand when the business will start to make money as well as the operating cycles. Although the investor should believe in the business, they also need to ensure that they will be paid back, which can include a phased approach.
If the investor is a family member, the lines between personal and business relationships can start to blend. If this is the investment route that the business owner takes, they need to ensure there is a repayment contract in place.
Explore resources to help small businesses
Small businesses have a wealth of options and opportunities for funding. These options can be funded by either private parties or the government. For example, PPE funds—now exhausted—were a great way for businesses to continue operations through the COVID-19 pandemic.
A few popular financial options that small-businesses owners can consider taking advantage of include the following.
- The Small Business Administration 7(a) Loan Program provides a guarantee on bank loan funds and reassurance for small-business loans.
- Councils of Governments provide grant opportunities or low rate loans that will go into a secondary lien position behind a bank to get alternative financing.
- Nonprofit lenders or community development financial institutions provide secondary loans for startup capital or ongoing working capital.
These options can be especially helpful if a small business finds itself in difficult financial positions. Although some businesses don’t have a choice other than to file for bankruptcy, for those that have other options, bankruptcy should be the last choice.
If the business owner has decided to finance through a credit union and is currently struggling as a business, it is incredibly important to stay connected with the credit union. If the business goes bankrupt, the credit union also takes a financial loss, so they will do their best to help the business owner work out the problem loans by finding alternatives.
Compared to banks, credit unions tend to be more flexible than larger institutions because credit unions are more member-focused. Credit union income generation is focused around the member experience, which includes giving back to the community, providing lower rates on loans and working with smaller businesses because of the wealth of benefits that come with their operations.
Where larger institutions have primarily looked at larger enterprises that are likely to result in more profits, credit unions have filled the small-business loan niche well.
