The COVID-19 crisis continues to affect the operations of construction businesses all over the country. While some construction sites are forced to close, payroll needs and other necessities require continuous funding, which can be challenging for some construction firms.
Luckily, there are resources available that can keep your cash flow going amid the novel coronavirus pandemic. Different construction businesses have different financial needs, and this guide can point you in the right direction if you are looking for support that can help you maintain your business during these challenging times.
Small business loans and reliefs from government
The US Small Business Administration (SBA) offers different programs and reliefs that can help small businesses survive the economic disruption due to the coronavirus. Whether you are a small business looking to make a loan or you already have an existing SBA loan, you should look at the following options that SBA offers:
SBA Payment Protection Program
The Payment Protection Program or PPP is a loan program that encourages small businesses to retain their employees during this health crisis. PPP offers small businesses up to 8 weeks’ worth of cash flow and the loan may be forgiven if the funding is used for payroll, rent, mortgage interest, or utilities.
Because the PPP is specifically geared towards protecting construction employees, at least 75% of the funding must be spent only on payroll. Salaries, employee benefits, commissions and tips all count as payroll expenses. Payments made to independent contractors are, however, not included in the list of valid payroll expenses.
Who qualifies for the Payment Protection Program?
Note that small businesses are not necessarily required to have fewer than 500 employees, as long as they satisfy other revenue-based or employee-based size standards of the SBA. The qualification requirements for the PPP are pretty extensive, that’s why it is one of the most popular funding options among construction parties hit by the pandemic.
What are the requirements for a Payment Protection Program application?
You can check out the application form for the Payment Protection Program to know the details that you must prepare when applying. You will also need to prepare certain documents, including the following:
- tax documents that lender needs to calculate the eligible loan amount
- payroll documents that verify the number of employees of your company
- dollar amounts of the payroll costs and other expenses (e.g. mortgage, rent, utilities) that you intend to cover with the PPP loan
Note that the loan amount that you can get through the Payment Protection Program primarily depends on the payroll costs of your company.
How to apply for the Payment Protection Program?
As with all SBA loans, you must apply for PPP with a qualified lender. The best way to find a lender is to use the Find A Lender tool of the SBA as it can match you with a qualified lender around your area.
Once you are in touch with a lender, your loan application will be processed and the SBA will cover it from there. Note that the funds for the Payment Protection Program are limited, so if you think that the Payment Protection Program is applicable to your current financing needs, make sure that you apply right away.
SBA Express Bridge Loan Pilot Program
The Express Bridge Loan or EBL is an express loan program that aims to assist small businesses in surviving or re-opening their companies through the COVID-19 pandemic. It is an expedited loan program so approved applicants are expected to receive funds within 45 to 90 days of approval.
Qualified small businesses can receive up to $25,000 worth of funding, and applications are accepted through March 13, 2021. Note that the funds must be specifically spent to finance the company’s operational expenses.
Who qualifies for the Express Bridge Loan Program?
Small businesses that are based in the US and that qualify as “small” businesses per the standards of the SBA can apply for the EBL. Generally speaking, SBA defines small businesses as those whose maximum revenues are between $750,000 to $35.5 million or those with a maximum of 100 to 1,500 employees.
On top of being a qualified small business, your company must have an existing banking relationship before March 13, 2020, which is considered to be the date of the disaster. You can prove your banking relationship by showing a recent bank statement that explicitly references your current business address.
What are the requirements for an Express Bridge Loan Pilot Program application?
When applying for an Express Bridge Loan, the documents that you must prepare include the following:
- SBA borrower information form
- IRS Form 4506-T (for your tax transcript)
- Agreement of Compliance
- Lender’s Application for Loan Guaranty
- Fee Disclosure and Compensation Agreement
Note that you must also be in good character standing with the SBA in order to get approved for this express loan. Your guarantor’s personal credit score will also be looked into during your application evaluation.
How to apply for the Express Bridge Loan Pilot Program
To apply for the EBL, you must visit a qualified SBA Express Lender. Use the Find a Lender tool to search for a qualified lender. The lender will lay out the complete requirements, receive your signed documents, and evaluate your application based on the SBA terms.
Remember that the EBL has a very quick turnaround so if your application is approved, you can expect to receive your funding within 45 to 90 days of approval.
SBA Debt Relief
SBA also offers debt relief to those with existing SBA loans. Note that this Debt Relief program does not apply to loans that were taken through the Payment Protection Program and the Express Bridging Loan Pilot Program.
Who qualifies for SBA Debt Relief?
According to the SBA website, the SBA will “will pay 6 months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020.”
The following provisions also apply:
- For loans not on deferment: SBA will make six monthly payments starting from the next payments due date
- For loans currently on deferment: SBA will make six monthly payments starting from the next payment due date after the deferment period has ended
- For loans made after March 27, 2020 and fully disbursed before September 27, 2020: SBA will make six monthly payments starting from the first payment due date
How to apply for SBA Debt Relief
No application is needed for the Debt Relief. SBA has asked all lenders to refrain from collecting payment from existing borrowers. Any questions on this debt relief must be directed to the lender.
Funding options from private lenders
Some construction businesses may not qualify for SBA loans. However, there are private lenders that offer funding options that could get your company through financial difficulties. The following are just some of the funding options that you can look into.
Business line of credit
A line of credit is a funding option that allows your construction company to have access to a fixed pool of money. It is a perfect financing tool during emergencies as you are able to withdraw money from your business line of credit at any time.
Most traditional banking institutions, as well as other private lenders, offer a line of credit for construction businesses. Applying to a line of credit is therefore as easy as contacting a private lender and inquiring about the specific documents that they ask for.
Advantages of using a business line of credit
A. You can access your emergency funds at any time
Having a business line of credit is like having a bank card that you can use to withdraw money whenever you need it.
B. You only pay interest for the amount that you borrow
Most lending institutions will only charge you interest for the amount you withdraw from your pool of funds. Payments are therefore generally more manageable with a line of credit.
Purchase order financing
Purchase order financing or PO funding allows you to purchase the supplies that you need, even if you don’t necessarily have the finances to buy them. PO financing can be a good financial resource during this pandemic, especially if your cash flow is limited but you live in one of the states where construction sites continue to operate.
When you use purchase order financing, a third party lender pays your supplier upfront and the supplier then delivers the materials to your client. PO financing is very popular among construction parties with limited funds but still have existing jobs to complete.
Advantages of purchase order financing
A. You can accept client orders despite limited cash flow
The main advantage of using PO financing is that it allows you to keep accepting clients even if you are facing financial challenges. The third-party lender is able to cover the costs for you in exchange for a fixed price.
B. You can qualify for purchase order financing easily
PO financing is one of the funding options that have no stringent requirements in order to qualify. Some lenders are able to approve applications within 24 hours, which can be perfect during extreme emergency situations.
Mechanics lien sale
Some construction parties may have pending mechanics liens waiting to be satisfied during this pandemic. The payment that could be recovered through these mechanics liens can surely augment your funding needs. For this, you can consider selling your mechanics liens to private lenders.
Selling your mechanics lien means getting the payment for your work from a buyer even before the mechanics lien gets satisfied. It is exactly like having access to your payment right away through a third party lender, instead of waiting for the property owner to settle the outstanding debt.
Advantages of selling your mechanics liens
A. You don’t have to wait for the owners to make the payments
When you sell your mechanics liens, you can have access to the money that you worked hard to earn without having to wait until your client finally decides to pay up. It is perfect during emergencies, especially if you need immediate cash to keep your business afloat.
B. You can get approved within 24 hours
Buyers of mechanics liens such as Handle are able to evaluate and approve your application in as quick as one day.
These are challenging times for any business. Thankfully, firms can resort to the different means outlined above to help them stay afloat hopefully until the COVID-19 crisis is over.
Further reading