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~~ Contractor Best Practices Newsletter ~~

by Ron Roberts
The Contractor's Business Coach

http://www.FilthyRichContractor.com

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Volume 2 - issue 8

February 21, 2007

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Tip of the Week:

If you are bidding against others and are winning more
than 40% of your bids - raise your prices immediately!
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Today's Article:

Becoming Bankable
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If you cross paths with a financially successful contractor, odds are the company has been in business for a long time. Have you ever asked yourself why? Why is it so rare to find a relatively new, financially successful contractor?

The reasons are many but the main one is that rapid growth requires lots of cash. New construction companies rarely have access to lots of cash. Without access to cash, new contractors are forced to grow very slowly.

So, where do most businesses turn to for cash to fuel growth or to cover expenses when clients hold payment?

Their bank.

But, do banks eagerly loan money to contractors?

No.

As a banker friend recently told me "In general, my bank views contractors to be un-bankable." His bank’s opinion appears to be in the majority. That doesn’t mean that banks will not lend money to contractors and that doesn’t mean you shouldn’t try to borrow money from banks.

What that means is you should make your company bankable. Allow me to explain how can a contractor becomes bankable.

Becoming bankable is relatively easy once you understand how banks make lending decisions. You need to develop a commercial lending contact at your bank.

Each commercial lender has a limit under which he may approve loans or lines-of-credit without gaining approval from the loan committee. Any request greater than the limit requires committee approval.

Lending committees are made up of banking personnel and outside advisors. The outside advisors are almost always successful businessmen. Their role is to judge the business asking for the loan.

Your commercial lender actually serves are your representative to the loan committee. He must persuade the lending board to approve your loan. Your commercial lender needs to have a good story to tell about you and your business. Otherwise, he will not gain approval of your loan.

In order to prepare your commercial lender for his presentation, you need to:

- Write a business plan that clearly addresses sales and marketing.
- Prepare a financial budget.
- Be willing to put your personal assets up as collateral.
- Show that you have properly insured your company.
- Show a habit of leaving significant cash and wealth in the company.

Now, why would a commercial lender be willing to work this hard for you? Because that’s his job - to recruit businesses that need to borrow money for short periods of time. Because commercial lenders only have two sources of new business.

1. Steal clients from other banks.
2. Catch new clients just as they are becoming bankable.

Listen to your commercial lender and don’t take offense to his advice. The bank is going to require collateral, as much of it as it can get.

If you don’t have enough faith in yourself to risk your personal assets, your bank will not have faith in you either. Which means that they will not bet their money on you.

Remember, you need access to your bank’s cash and to get that access you must make yourself bankable!

Until next week, good luck with your business.

Ron Roberts,
The Contractor's Business Coach

P.S. Share this with your contractor friends. They will thank you for it.
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SERVICE PROVIDERS THAT MAKE YOU MONEY


Independent Lease Review, Inc.
http://www.ReviewYourLease.com
Experts in equipment lease negotiation and contracts.
 
Synthesis, Inc.
http://www.Synthesis-inc.com
Construction accounting, lead generation, and customer relationship management software consultants and trainers.
 

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WEBSITES TO FREQUENT

http://www.WorldSweeper.com
World Sweeper.com contains several articles written
to help contractors run profitable businesses.
http://www.WorldSweeper.com

http://www.ForConstructionPros.com
For Construction Pros.com is the online presence of
Cygnus Media. Cygnus publishes several construction
magazines. Bookmark their site and check it monthly
to find helpful articles.

http://www.ConstructionBusinessOwner.com
This website contains an abundance of great articles
and helpful tools to help owners improve their business
results.

http://www.FilthyRichContractor.com
Shouldn't I pimp my own site? :-)

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