Issues Relating to Construction Lending and the Construction Industry  Construction- Start to Finish- seek lender involvement early during the approval process and shortly after receipt of approvals.  Permanent Financing- allow days (or more) from meeting to closing. Appraisal, Environmental reports and title work need a few weeks lead time.  Any Government sponsored involvement such as the EDA or SBA should be coordinated through your lender  Appraisals-more conservative  Lending criteria post sub prime debacle

Lending to Contractors- Specialized Field  Some Lenders will not entertain lending to this specialized field.  Lending to some specialties and not others.

Choosing a Bank  Questions to ASK! What is your legal lending limit? What is your ‘hold’ or limit?  Prohibition on certain industries or groups. i.e. road building contractors, bridge or dam builders etc.  What is the approval process? Is it a signature process or committee process? Usually driven by the loan amount.

Loan Structure  Collateral- business assets, lien on real estate.  Cash Flow- debt service coverage.  Conditions  Capacity- ability to service the debt. Previous history and proforma cash flow.  Character- most important in some lenders eyes.

Specialized Criteria for Lending to Contractors  Stricter covenant criteria.  A/R to A/P ratio: Minimum: 1.5X--Like to see: 2.0X to 2.5X  Debt to Worth: Minimum: 2.0X—Like to see: 1.5X to 2.0X  Current Ratio Minimum: 1.0—Like to see: 1.20 to 1.0 or better  Cash to Total Assets: Like to see: 5% to 7%  EBIT/Interest Expense: Like to see: 3.0X to 8.0X

Financial Reporting:  An accurate and timely reporting of financial information is crucial to a successful borrowing relationship.

Reporting for Working Capital Lines of Credit:  FYE- audited are preferred for credits in excess of $5 million.  Reviewed FYE with disclosures. Within 120 days of FYE.  Semi Annual Statements- compiled or reviewed with disclosures. Can be negotiated.  Quarterly financial statements – company or mgmt prepared.  A/R and A/P agings- quarterly.  Contract Status Report – quarterly.