What Your Lender Really Wants to Hear

by David M. Wolfenden, CPA, CVA, MS, Managing Director

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What does every contractor’s lender want to hear? Why, “The check is in the mail!” of course. But, seriously, lenders — much like sureties — expect construction companies to operate in a manner that assures both timely payments and the feasibility of future loans. Here are a few choice quotes to lay on your lender rep the next time you meet to discuss a capital infusion.

“I’ve done my homework.”
Lenders view their relationships as two-way streets. As such, their role is to deliver quality lending products under reasonable terms. Naturally, yours is to maintain your payment schedule. But it’s also your responsibility to provide accurate and up-to-date information regarding your construction company’s finances.

Thus, your lender wants to hear that you’ve done your homework in generating the data it needs. This includes soundly created current financial statements, as well as projected balance sheets and future earnings statements. Some lenders look for as many as 36 months of cash forecasting, and a realistic financial contingency plan.

Your lender also wants to hear a realistic assessment of your own credit needs. Asking for an enormous line of credit without the backlog and sales projections to back it up doesn’t put a construction business in the best light. Remember that, generally, lines of credit should be viewed as short-term cash flow boosters to aid operations while awaiting accounts receivable.

“I’m set up to succeed.”
Every construction company needs to have certain foundational elements in place before contacting a lender. Most of these things you must have in place anyway, loan or not. But if they lapse or fall to suboptimal levels, your loan request may go unheard. In short, your lender wants to know you’re set up to succeed.

For example, as obvious as it may seem, you need to have a good credit rating. Some contractors assume their credit is in fine shape, only to learn otherwise when seeking out a loan. Be sure to actively monitor and build your business credit on an ongoing basis.

There are also your licenses and permits. Should your licensing expire in any key area, the loan process will come to a screeching halt. Many lenders will also require you to pull all of your project permits. Doing so can be time-consuming, but missing permits will also hurt your chances of getting a loan.

Then there’s insurance. Your lender wants to hear that you’re covered for anything it considers pertinent. Be prepared to show proof of insurance in these areas, and be ready to discuss why you don’t have a policy that a lender may believe is important. Last, don’t forget about bonding. If you work on projects that require it, ask your surety to attest to your good financial standing.

“I know what I’m doing.”
At the end of the day, lenders want assurance that you know what you’re doing. This may sound simplistic, but these institutions really do look for contractors who know their industry and local markets, adhere to safe employment practices, and can complete projects on time. If you’ve been encountering difficulties obtaining a loan, contact Dave Wolfenden at (302) 254-8240 to discuss target areas of your business that may need improvement.

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