Whether your construction company is just getting off the ground or has enjoyed years of success, understanding business credit can help you fuel growth and manage risk. Seeking to build your company’s business credit file is an important part of creating a reputation as a reliable contractor, because it may help show a history of responsible financial behavior to potential business partners. Conversely, keeping an eye on your partners’ credit files can help alert you to financial struggles that could spill over to your own business. Take a look at our infographics below if you would like a visual walk-through of why business credit matters to construction companies and how it can be one of the tools in your toolbox.
Types of Construction Contracts for Bid
Construction bidding is the process of applying for contract construction jobs by submitting a proposal or “bid.” These proposals typically involve reviewing engineering plans and specifications and offering a cost and time estimate of how your firm can complete the project. However, other factors can contribute to a contractor’s ability to win a construction contract. Experience, reputation, and financial security often play big roles in the selection process.
There are different types of construction projects for bid that can require different skills sets. For example:
- Residential construction contracts – Residential construction contractors build residential dwellings, typically multi- or single-family homes. These projects are usually owned by private enterprises and look for contractors who have a robust supply chain and steady supply of skilled labor. The housing industry is cyclical and regulated by local municipalities like cities and counties.
- Commercial construction contracts – Commercial construction contractors build commercial buildings, which can range from a small office building project to a skyscraper. As you can imagine, a wide variety of skillsets and specializations are needed in this area. The bidding process can be more formal, as commercial building projects may be backed by large capital investments. These projects are often driven by population and economic growth.
- Government construction contracts – Government construction contractors build projects funded with public money. Roadways, buildings, and facilities owned by government municipalities, such as cities, counties, states, and even the federal government, will be subject to a bidding process for any related construction project. The bidding and award process is strictly regulated to help ensure the appropriate use of public funds.
All of these types of construction projects can make your business vulnerable to liability and other financial loss. That is why it is important to demonstrate your technical competence and financial stability when submitting a bid.
How to Bid Construction Jobs
One construction contractor may have the ability to bid on many different types of construction projects. Depending on the project and project owner, the requirements may change from bid to bid, and thoroughly understanding and addressing the project needs and objectives can be key to submitting a winning proposal.
Learn how to help get construction contracts by considering these steps to a successful bid:
- Finding projects for bid – Your avenue to finding projects to bid on may vary depending on your firm’s project expertise. Choose a project that complements your firm’s abilities and experience. Many requests for proposal (RFPs) can be found online. Networking with peers in your industry may clue you in to projects that will soon be up for bid, allowing you to prepare in advance to submit your bid.
- Preparing your proposal or bid – Each request for proposal is unique. It’s important to carefully read and understand the requirements of each project. Differentiate your firm from other companies by highlighting your experience with similar projects, your financial and staff resources, and your ability to complete the project on time and within budget.
- Submitting your proposal or bid – Submitting your proposal on time and in the specified manner is your first opportunity to demonstrate your ability to deliver on time. Some RFPs will require additional information to be submitted or an interview with the firm before granting an award.
- Following up on the results – Even if you don’t win the bid, you should consider contacting the requesting organization to find out why. You can learn from this feedback and apply it to your next bid.
How Business Credit May Help Construction Companies
Aside from bidding on contracts, your construction company’s business credit file can be important in helping lenders, potential clients, and insurers understand the potential risks involved in working with your company. Having an up-to-date business credit file may help you with:
- Bonding: Securing a bond is often a required first step to submitting a bid for a construction project. Before issuing a bond, a bonding company may check your company’s business credit file to help assess the financial health of the business.
- Funding: Construction companies with business credit scores and ratings may find it easier to get short-term loans to cover expenses until invoices are paid. A line of credit or a longer-term loan can also help you strategically grow your company and meet rising demand.
- Insurance: Some insurance companies require their insureds to maintain specific Dun & Bradstreet scores and ratings.
- Contracts: A construction company with a stellar business credit file may appear more reliable to potential partners. When seeking to build business credit, each positive payment experience your company has with a partner, supplier or vendor (in which your company pays them on time and according to the terms of your agreement) may be another step toward winning more contracts.
- Getting better terms and conditions: If you can negotiate favorable terms and conditions for your business by leveraging your payment history, you may have more funds available at lower interest rates or with additional time to repay debts.
- Managing risk: Construction companies can also monitor other businesses’ credit reports to help protect themselves from late payments or partners at risk of bankruptcy.
Challenges Facing Small Businesses
Here’s what research suggests about some of the issues facing small businesses:
- 68% expect slowed business growth in the next six months due to lack of available capital. – “Private Capital Access Index Q3 2019,” Dun & Bradstreet and Pepperdine Graziadio Business School
- Small business loans have improved gradually in the last few years, but still remain below pre-crisis levels. – “Small Business Lending in the United States 2016,” U.S. Small Business Administration, Office of Advocacy
- 33% of small businesses are unable to hire new employees due to lack of access to capital. – “Private Capital Access Index Q3 2019,” Dun & Bradstreet and Pepperdine Graziadio Business School
- Nearly 30% of small business owners needed additional financing but chose not to apply because the costs of financing would be too high. – “Financing Patterns and Credit Market Experiences: A Comparison by Race and Ethnicity for U.S. Employer Firms,” U.S. Small Business Administration, Office of Advocacy
Business credit is a powerful tool that may help address these concerns and remove obstacles to growth.
How Construction Companies Can Seek to Build Business Credit
Business Credit for New Contractors
As a new company, you and your employees might not know that you should start working toward seeking to build business credit as soon as possible. Laying the groundwork now can save you frustration down the line. As a new business owner, you’ll want to:
- Get a free Dun & Bradstreet D‑U‑N‑S® Number: This unique identifier creates your Live Business Identity in the Dun & Bradstreet Data Cloud and will follow your business throughout its lifetime, allowing relevant information to be attached to your record. Once you have a D‑U‑N‑S Number, visit our Business Credit guide for more information and tips.
- Separate your business and personal credit: Establish a business bank account, and pay bills in your company’s name to help create a distinction between your personal and business credit. You and your construction company should be separate entities for the purpose of building business credit.
- Get notifications of changes to your business credit file:* Get alerts on changes to your Dun & Bradstreet scores and ratings for free with CreditSignal®.
- Get customers/contracts: Check out our contracting guide for information on corporate and government contracting and subcontracting and on supplier diversity certifications.
How Business Credit May Help Protect a Growing Company
As you expand your construction business, you’ll want to check out potential partners’ business credit reports, which may help you:
- Anticipate late payments or bad business debts
- Manage your cash flow
- Avoid working with high-risk companies
- Predict bankruptcy
When You’re a Major Construction Firm
You have numerous contracts, thousands of employees, and multiple offices, but you’re not through with business credit. You’ll want to help protect your company by monitoring partners’ business credit scores and ratings to help you:
- Make safer, smarter, proactive decisions
- Stay compliant by alerting you to potential noncompliance in your supply chain
- Anticipate disruptions in your supply chain
No matter what size your construction company or how established it is, knowing more about business credit can help you understand how it can affect your business. To explore what’s in a business credit file, visit our guide here.
* CreditSignal only shows four of your Dun & Bradstreet scores for 14 days, then provides directional changes to such scores. To view additional scores and ratings or view scores and ratings following the 14-day period, we recommend that you upgrade to one of our paid credit monitoring or credit building solutions.