A guide to understanding what your lender expects from you

Do you think lenders are only interested in whether or not you will be able to pay them back? When you think about applying for a loan, you probably assume that "they know what they're doing, and I know what I'm doing." You may be surprised to know that line of thinking could not be more off the mark. Often, working with a lender can often be all about the relationship.

It is important to remember that relationships are a two-way street. The lender brings financing, mentorship and trust to the relationship. In addition to your ability to pay the lender back within an agreed upon time and hit the milestones you have agreed to, you bring expertise, skill and trustworthiness to the relationship.

Trustworthiness

Trustworthiness can be earned through your commitment to being meticulous about the company's finances, as well as through your knowledge of the best practices that have been set by your industry. Your lender knows what those best practices are, so it will serve you to have a solid working knowledge, too.

Don't Ignore the Basics

  • Licenses and Permits—Always make sure that you have all of the necessary licenses your business needs, including those that apply to specific trades like HVAC or electrical. States have business license offices that can help you find out which ones you need. Also, make sure you pull all of the permits for the work you are planning, and see them through to final sign-off. The process of pulling permits can be arduous, but cutting corners can cause clients and your lender to quickly lose trust in you.
  • Insurance—Having the right amount and types of insurance for your company and your projects can be critical. Most banks require proof of insurance for your projects, but make sure you have what you need to protect all aspects of your business. Talk to your lender about what they require, and then talk to your insurance company to make sure you are completely covered.
  • Bonds—Construction bonds, also called surety bonds, are often a requirement to legally operate.
  • Credit Worthiness—So many parts of your business rely on having a solid business credit report. It is important that you take an active role in monitoring and building your business credit with a long-term plan for a successful report.

Bjork Construction, founded by Jean and Don Bjork, specializes in commercial and residential projects for companies, including PG&E and Lockheed Martin. The Oakland, California-team knows the importance of being a reputable company with a long-standing credit industry.

"Business credit scores can act as a report card for a small business. Our scores help show how we handle our business. When working with larger general contractors, they tend to look at our business credit to make sure we take care of our finances," Bjork said.

Government Projects and Requirements

Winning federal government projects can really help your business grow, but it also requires that you take federal regulation compliance seriously. Your lender takes them seriously, too. Federal projects must comply with programs and regulations, including Construction Participation Goals for Minorities and Females, veteran programs, affirmative action programs and non-retaliation policies.

You should also be very familiar with the Davis Bacon and Related Acts (DBRA), which require all contractors and subcontractors performing work on federal construction contracts or federally assisted contracts in excess of $2,000 to pay their laborers and mechanics no less than the prevailing wage rates and fringe benefits for corresponding classes of laborers and mechanics employed on similar projects in the area.

The United States Department of Labor has great resources, including compliance assistance materials, record-keeping tools and additional information about all applicable laws and regulations. If you are working on projects that fall under Housing and Urban Development (HUD), you should review their Manufactured Housing Guide and their HUD Minimum Property Standards for buildings constructed under Housing and Urban Development housing programs.

Environmental Rules and Hazardous Materials

The Environmental Protection Agency (EPA) provides information about lead, dust and soil and the rules and regulations for working around hazardous substances. OSHA offers a useful Asbestos Advisor eTool.

The Construction Industry Compliance Assistance Center (CICA) is your source for "plain language explanations of environmental rules for the construction industry," and contains a lot of information worth reviewing. The center's site covers a wide variety of topics, including air emission rules, construction and demolition debris best practices, regulations surrounding using diesel engines and how to work when there is an endangered species habitat on the land where you are building. The information is provided free of charge by the National Center for Manufacturing Sciences in partnership with the Associated General Contractors of America (AGC) and is funded by the U.S. Environmental Protection Agency and AGC.

Energy Code Compliance and Efficiency

Energy efficiency is getting a lot of attention these days, so make sure that your projects are energy code compliant by staying up to date on regulations and requirements. One resource you can refer to is the U.S. Department of Energy\'92s Building Energy Codes Program. On its website, there is a collection of materials and tools created to help the building industry "achieve, document and verify compliance with energy codes."

In addition to energy code compliance, there are financial savings through incentive programs, grants and special loans. Energy Star, developed by the EPA in 1992, works with organizations to help them save money and reduce greenhouse gasses, and in the case of building companies, "to help create better buildings, a better bottom line and a better world."

Energy Star has published a Guideline for Energy Management that outlines seven best practices for commercial buildings and industrial plants. There is also a section of the site devoted to helping you learn the strategies and incentives to finance energy-efficient projects. For incentives and programs in your area, check out the Directory of Energy Efficiency Programs.

Your knowledge of these types of available programs can show your lender that you have done your homework and are interested in being a solid member of your community.

A lender expects you to be knowledgeable about key issues that surround the construction industry. The areas of business that your customer is concerned with—how a business is run, how knowledgeable the owners are, how the staff is treated and the quality of product being delivered—are also the focus of building a relationship with your lender.