5 Effective Strategies for General Contractors to Cut Costs

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StrategyDriven Managing Your Finances Article | 5 Effective Strategies for General Contractors to Cut CostsContractors need to devise ways to cut costs in order to remain profitable. With increased competition, the need to cut costs has become important now more than ever.

Eliminating people is not the right way to cut costs. This will only stifle the ability of your firm to make a profit. Instead, you should look for other ways to cut costs and boost profitability.

1. Cost Audit

The first step in cutting costs should begin with a complete audit of the existing expenses. You should consider ways to reduce operational expenses.

You can relocate the office to a location where the rent is lower. Also, you can consider the shift from in-house to cloud operations to cut overheads.

A lot of contractors subscribe to different software services yet don’t use most of them. Consider whether the services really add value to your business by saving time or improving efficiency. If not, it’s better to cancel the subscription.

2. Time and Contract Clause

Instead of Under-the-contract-price, you should consider adding the add-to-exceed clause. In the former case, the owner of the project only has to pay a fixed cost that includes overhead and profit. This is not necessarily the most cost-effective approach.

Instead, you should consider the time and materials contract. This is a type of contract consist of the following three terms.

  • Actual material costs
  • Actual direct labor costs at a specific hourly rate
  • Agree on add-on to cover profit and overhead

The main benefit of this type of contracting is flexibility. This cost structure allows you to adjust requirements, replace features, and cater to changed user requirements without taking a hit on the bottom-line.

3. Seek Multiple Bids

When working with a sub-contractor, you should consider multiple bids. This may take additional time, but the effort will be worth it in the end.

You may have to send lots of emails and hammer the phones. But this will allow you to lock in on subcontractors that offer services at the least costs. This extra work will help in significantly reduce the internal expenses.

4. Inspect Your Schedule

You should keep an eye on your schedule for any potential stacking or acceleration of activities. Compressing the schedule will allow you to squeeze cost advantages. Time is money and any time that is saved will have a positive impact on the company’s bottom-line.

5. Financial Prequalification

You should prequalify all subcontractors to reduce the risk in case of cost escalation. This is particularly important if the subcontractor will bear most of the risks. It will help in absorbing any deviances in a project that result in increased cost.

By financial prequalification, you can get assurance that the subcontractors will be able to absorb any costs overruns. Some of the criteria that you should consider include pipeline, days of cash, and work in progress.

The above tips can help in greatly reducing the contracting costs. Consider adding an escalation clause in all your projects as well. This will pass on the risk of cost increase to the project owners.

Understanding Hard Money Business Purpose Use Loan and The Benefits for Investors

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StrategyDriven Managing Your Finances Article |Hard Money Lending|Understanding Hard Money Business Purpose Use Loan and The Benefits for Investors Contrary to what the name suggests, hard money does not involve questionable lenders who conduct their business under the table and charge inflated interest rates. In fact, that is not even close to how one would define hard money loans.

So, what are these loans then? They are short-term, interest-only mortgages that buyers use to purchase and rehabilitate damaged properties. Typically, the loan repayment time is 12 months. However, there are some situations where the loan term can be stretched to two to five years. The payments need to be made monthly and they must comprise of only interest or interest with some principal repayment.

The value of the subject property at the time of applying for the loan determines how much loan amount buyers are eligible for. The property for which a person gets a hard money loan does not necessarily need to be a property that they wish to acquire. It can also be a property they already own and want to use as collateral. Specific to small business financing, hard money loans are available to both consumer and business owners.

What Is Needed to Qualify for Hard Money Business Purpose Use Loans

Who is eligible for hard money business loans? New businesses and businesses with low credit scores. These are businesses that find it incredibly hard to secure a loan from a traditional bank. Therefore, the only viable option they are left with to get the funding they need is hard money loans. These loans are backed by the commercial real estate of the business.

A hard money lender will provide you the business purpose use loan if you can prove you have enough equity in real estate. Hard money lender can look beyond your financial or credit shortfalls which is what makes them different from a bank. Regardless of your creditworthiness or time in business, you can get easy access to capital with the hard money loans backed by collateral.

A hard money business purpose use loan will cover you whether you want to buy a new property or want to renovate an existing building. The collateral that you can offer to the lender will determine how much loan amount you qualify for.

In most cases, the entire value of the collateral isn’t calculated for this purpose. Instead, a loan-to-value ration is used to calculate the loan. What does this value represent? It represents a percentage of the property’s value.

Generally, the loan-to-value ratio is quite high. This is because most of the collateral’s value is used to back the loan. Also, hard money lenders are primarily concerned with the value of the property. In most cases, the loan amount is about 70% of the value of the property.

What Situations are Best for Hard Money Loans?

Following are the ideal situations for hard money loans:

  • Construction loans
  • Fix and flip investments
  • When a real estate investor has to act quickly
  • Land loans
  • Why a buyer has credit issues

What Makes Hard Money Business Purpose Use Loans Useful

What is the main reason for anyone, which includes businesses, to get hard money loans? It is to get funding for the purchase of the real estate, capital equipment, or other capital assets. In the real estate industry, hard money loans are growing in popularity.

What is the reason for this? New businesses or businesses with low credit scores are highly likely to get approved for the loan. However, they must own some sort of real estate. It could be residential, commercial, or land property.

Provided by non-traditional lenders, hard money loans are typically offered by private individuals and private funding groups. Unlike traditional lenders such as banks, lenders of hard money loans have lenient policies and flexible rates and criteria. This makes the approval process quicker and easier.

If you’re prospective borrower, then there are many reasons why you’d want to get a hard money business purpose use loan. The first and foremost benefit is the ease of qualifying for the loan. Unlike traditional lenders, hard money lenders do not give too much importance to a credit score when qualifying applicants. Another benefit is the easy application process. The only thing that lenders want to check is the collateral.

The lenders will not ask you to provide any information and documentation that are typically required for conventional loans. However, the best thing about applying for this loan is that you get fast access to financing. While hard money lenders are more lenient than conventional lenders in qualifying people, they do look for certain qualities in borrowers.

While most of them will not mind funding a newer business, they will prefer a business that has been around for at least a few years for the loan. What is the reason for this? Because businesses that have been operating for a while are more reliable than newer businesses. Additionally, they have a stable cash flow that will allow them to meet the loan’s terms.

A business risks losing its collateral if it is unable to repay the loan according to the terms of the loan. Therefore, you must determine if a hard money loan makes senses for your business before committing to it. By doing this, you will avoid a lot of unnecessary financial problems going forward.

Before you apply for the loan, consider how long you have been in business. Apply for and get the hard money loan if you believe you have enough experience to deal with any challenges that may come up during the repayment of the loan. If you lack the needed experience, then develop a back-up plan that involves financially feasible ways of repaying the loan according to the agreed terms. All this benefit you in the long run.

A hard money business purpose use loan is a great option if you want financing but have a low credit score. However, before committing to a hard money loan, make sure to consider the things mentioned above. By doing this, you will ensure that you are able to repay the loan on time and within the agreed terms!

StrategyDriven Enterprises

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