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Things You Need to Know about Construction Insurance

When most companies think of insurance, they typically only think of their general small business insurance policy. But, if you are a construction company owner or manager, there are a few extra things to consider.

The construction industry requires more insurance than other types of companies. This is because construction projects are considered higher-risk entities in the eyes of most insurers. While we know that you take safety seriously, coverage of different properties and expensive equipment calls for above-average premiums.

This article will give you a quick rundown on different types of insurance policies, specific to the construction space. You will also find out what kind of insurance comes with your purchased or leased construction equipment.

Must-have insurance policies for construction

We’ve listed the policies that are typically required or commonly considered as basic for a construction business. These policies will safeguard you from losses most of the time.

  • General Liability: This construction liability is pretty common, and the coverage protects your business if it’s responsible for anything like property damage, bodily injury or incorrect work.
  • Business Vehicle and Commercial Auto: Protects vehicles used in your business that transport tools and equipment. You can also add coverage to your policy that allows you to cover permanently attached equipment such as bolted toolboxes or racks. If you lease equipment, your lender will typically insure it for you. AFG provides default insurance as part of your lease, but you can always switch to the provider of your choice.
  • Workers’ Compensation: Covers employee medical costs and a percentage of lost wages if they get injured at work.
  • Professional Liability: helps to pay for alleged work oversights that cause a client to lose money. If someone says you didn’t deliver the promised services, they can ask you to pay for any losses. Professional liability can help cover the costs to defend your business and/or fix the problem.
  • Builder’s Risk/Course of Construction Insurance: This is property replacement coverage. This insurance is specialized property coverage that is applicable to buildings in progress. Your policy should be tailored for your business and project. Course of Construction insurance is another name it goes by. It is applicable to:
    • The restructuring of existing buildings, such as the addition of a staircase
    • The construction of a new building from the ground up
    • The renovation or refurbishment of an existing building

Why extra coverage is a good idea?

We understand that insurance premiums take a significant chunk of cash flow that could, potentially, be used in revenue-generating activities. Even though paying premiums isn’t necessarily amusing, additional coverage has its benefits.

  • Take the guesswork out of your budget. Knowing that almost every possible deviation from the plan is covered by the insurer enables precision in your budget. When your projects involve multi-million material, handling, and equipment costs, extra coverage will bring you peace of mind.
  • Safety sells. Developers are more likely to contract a reliable builder. Showing the extra coverage to your customer is a great selling point that will earn you serious projects.
  • Save time and money down the road. Insurance comes in handy when something goes awfully wrong. Sometimes, acknowledging and covering a mistake can be much easier on your business than a dispute in court.

Good-To-Have Construction Insurance Policies

Now that we’ve established the insurance solutions a construction company requires, here are some optional coverage opportunities to consider:

  • Pollution and Environmental Liability Insurance: Provides coverage if you’re liable for a pollution incident that occurs at a job site. If you bring chemicals or fuel tanks for refueling equipment onto a job site, it creates the risk for potential pollution to occur.
  • Inland Marine Insurance: The name of this policy may cause some head-scratching. The early days of moving goods from one place to another involved transport by ship, hence “marine insurance” was needed for the property on board. The term commonly used today is “floater”, a policy that covers gaps between other policies.
  • Contractor License Bonds or Surety Bonds: Some cities and states require that contractors obtain a license and permit bonds to ensure that customers receive the services and completed work that’s been promised. It’s a legally binding contract that also helps ensure that the contractor will pay for any materials and labor required to complete the job and not leave the customer holding the bill.
  • Cyber Insurance: One of the fastest-growing types of business insurance involves protecting your company’s data. As construction firms rely more heavily on technology the need to protect all that data increases.

How to choose a construction insurance policy?

Insurance companies are different. Some of them focus on a specific segment, for example, construction, others – cover all kinds of businesses. Here are a few things to take into account when selecting an insurance provider:

  • History and experience. Find out how long a company has been in business and if it has made the news recently. Companies with a proven track record tend to be more reliable and could offer better premiums & coverage.
  • Convenience and availability. If you have to wait on an 800 line, that’s a sign your claim could take a while to be processed. Timely payouts are crucial to the construction industry and other companies operating on the clock. Ask if you could be assigned a personal manager and if you could get their direct phone number and email address.
  • Cheaper isn’t always better. You are paying
  • Finally, coverage. Find out what exactly is covered and in what situations. For example, a worker breaking your company’s equipment is entirely different from a tree falling on the machine. Make sure you understand how coverage works and what your responsibilities are.

Consider using multiple insurers for different policies to achieve better coverage and lower your premiums.

Similar to insurance, equipment purchasing can be hard on the bank account. And just like insurance providers, choosing the right lender is crucial. AFG has been financing construction equipment and project costs since 1998. We understand the industry and the equipment used by contractors. Get in touch with your Personal Account Manager today to learn more about your funding options.

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The Sound of Small Business USA

The US is and has always been built on small businesses. Did you know the SBA’s 2019 report stated there are 30.7 million small businesses in the U.S. and they make up 99.9 percent of all U.S. businesses? That’s right. They contribute not only to employment, but to innovation and the global economy. 

There are many upsides of owning a small business. There’s the flexibility and empowerment of being your own boss. There’s the possibility of financial freedom without the restrictions of working for someone else. And of course, maybe most importantly, there’s the ability to follow your own passion and do what you love.

Of course as many of us know, freedom comes with responsibilities and risk. For instance, right at the outset, 50% of all small businesses fail. Not the best odds when trying to set up a career and future. Small businesses tend to be the hardest hit during times of recession. And it’s more difficult to attract qualified employees when you might not be able to offer the same level of pay or benefits as a large corporation.

Despite the potential downsides, the good news is that the future of small business looks promising. Most of the recent studies and statistics show a future of growth and expansion, which bodes well for business owners and the US economy.

Need proof? According to a Guidant Financial and the Small Business Trends Alliance (SBTA) Small Business Trends 2021 survey:

  • 49 percent of small business owners plan to increase staff and expand or remodel their business. 
  • 55 percent will pivot with the times by investing in digital marketing 
  • 27 percent will be investing in IT infrastructure
  • 22 percent will invest in business services such as using a third-party or software to help them manage payroll, accounting, or inventory.

The fact that businesses are planning to invest right now means they see opportunities for growth and feel confident committing time and resources towards that growth. This speaks volumes especially considering we are still in the midst of a global pandemic and most small businesses have not fared well over the past year. Plus, as so many of us know, the hardest part of growing a business is cash flow management. 

The future of small business requires capital. 

But how do you secure it? Bank loans can be cumbersome and tedious, especially for small business owners. And often, they don’t provide the benefits other options do.

Also, many of the small businesses that require capital don’t qualify for traditional bank loans. The banking industry’s risk management model does little to support and encourage small entrepreneurs. 

Larger corporations tend to be more diversified and therefore can navigate growing pains more easily. Whereas a small business owner might have to mortgage a house, for example, to expand or even just to keep the business going.

Banks tend to be a poor match for a small business owner. There are however alternative methods that can help you fund your growth:

  • Equipment Leasing: Leases can provide a great way to source new equipment without having to secure a loan. Plus, you can keep the loan option available for other important projects.
  • Business Line of Credit: extremely flexible since you can continue to reuse and repay as often as you’d like, as long as your payments are on time.
  • HELOC – Home equity line of credit: Often a viable option for small businesses. It can be a bit risky as it ties your personal assets to your performance in business. While the costs are low, you have to put your personal finances on the line.
  • Pay Cash: Can you liquidate assets? Have a family member who can provide funds? If so, cash can be a great option.
  • Private Short-Term Unsecured Cash Loan: Working capital loans are easy to secure and typically no collateral is required with an alternative lender. And since they draw capital from private sources, they can be more flexible with the lending opportunities they provide.

There are many benefits of alternative lending which has led to a rise in small private finance companies in the last decade:

  • Private lenders such as AFG understand the personal risks of a small business owner and offer solutions that help the business thrive.
  • Unlike banks, most private lenders do not impose blanket liens on the business. The equipment financed is the only collateral required to guarantee the deal. No need to put family finances at risk.
  • Creative payment options and finance structures that take a company’s seasonality and downtime into account.
  • Prompt, simple process – most private lenders will make their credit decision in 24-48 hours with little paperwork (banks may take weeks reviewing financial statements).
  • Tax deductions (often, you can deduct the full cost of qualified equipment purchases).

We believe in the power and strength of small business. This country was built on it and will continue to thrive because of it. Which is why AFG does what we do. We hope our support of small business is evident in the way we structure our own processes and the way we work with our clients. We truly want what’s best for them and work hard to ensure we meet their goals every time.

If you’re a small business owner that wants to grow, reach out and learn more about your options. Let us find a solution that works best for your business.

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The Hardest Part of Growing a Business

According to the U.S. Bank study conducted by Jessie Hagan, “82 percent of businesses fail due to cash flow mismanagement” 

You know that running a successful business requires first and foremost, a clear understanding and knowledge of the financial aspects of the business. Companies of all sizes need at least some sort of financial planning assistance in order to grow. A plan needs to be in place, especially during those growth years when problems with cash flow management are most likely to arise.

Businesses operate on money and its availability (working capital) determines everything from how you’re going to pay your bills, to making your rent payment to being able to upgrade equipment and materials to keep up with your competitors. 

You need to know where every single dollar is coming from and where every single dollar is going.

If you don’t stay on top of your cash flow, you could put your business in jeopardy.

FACT : Just because a company makes a profit does not mean that they are cash-flow positive.

Let’s imagine that a company makes $25,000 in sales and has $20,000 in expenses one month. There is no guarantee they will collect all $25,000 from those sales, especially if their customers are given terms (i.e. net 15 or net 30). If at least $5,000 or more of those sales are not paid upon delivery, the business will be forced to cover a portion (or all) of the $20,000 in expenses. This is where a lot of businesses get into trouble and would benefit from additional working capital.

Some of the most significant monetary challenges your business can face:

  1. Limited cash flow – if capital expenditures or outstanding receivables are draining your bank account, your ability to be profitable will be challenging if not impossible.
  2. Effective Budgeting – failure to stick to a budget can affect your ability to analyze and forecast expenditures and change direction quickly when needed. 
  3. Tax Compliances – One of the biggest issues that businesses face regarding federal taxes isn’t payment – it’s the cost of compliance.
  4. Raising capital – a lack of capital can prevent a small business from hiring, thereby preventing expansion into additional markets and exploration of new opportunities.
  5. Preparation for unforeseen events – how many people predicted a global pandemic? Not many, and unfortunately because of that, thousands lost their businesses and livelihoods. 
  6. Excessive Debt – from varying interest rates to price increases on cost of goods and services, unexpected costs can add up. And debt can grow exponentially when these surges are combined with slow selling seasons.
  7. Late payments – late payments typically come with late fees and the longer you wait to pay them, the quicker they add up.

How do you overcome these challenges? 

It’s not about overcoming these challenges – the real question is how do you acquire the cash liquidity needed to keep your company not only operational, but in a growth stage?

There is more than one solution, but utilizing a working capital loan or leasing equipment are often your best bets, depending on your business and its current state. There are lots of benefits to both. You can read more about working capital benefits and benefits to leasing equipment to understand what solution will work best for you.

In the meantime, here are some other helpful hints to get you on the road to abundant cash flow:

  1. Keep a Line of Credit
    You’ll likely need access to funds other than your initial investment to keep your business going. Taking out a revolving line of credit helps many businesses stay afloat.
  1. Minimize Overhead
    Everything you spend in a business eats into your profits. Prioritize only necessary expenditures (equipment, staff, space, etc.) to minimize costs.
  1. Track and Monitor Spending
    The more you know about what’s coming in and going out, the easier it will be to plan for your future and invest in your growth when the time comes.
  1. Invest Appropriately
    Investments are necessary for growth, but don’t rush into “too good to be true” ventures. Take your time to assess the potential outcomes and choose the opportunities that best fit your business model and mission.
  1. Maintain Cash Reserves
    Cash is king. And as far as we know, it probably always will be, so maintaining some level of cash at all times is a must when you’re in business.

Need help with cash flow management, a working capital loan, or equipment financing? We can find the path that works best for your business. 

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Emerging from The Shadows: Independents Embrace Optimism for 2021

Leaders of three top private independents share the biggest challenges their companies faced in 2020 and discuss how their cost and access to capital fared over the last year. As the economy emerges from the COVID-19 pandemic with pent-up demand and new infrastructure spending projects on the horizon, they agree 2021 looks bullish for the industry.

What was the biggest challenge your company faced in 2020 and how did you overcome it?

Dave Fate: The biggest challenge we faced was the sudden stop in travel and loss of opportunity to meet face to face with customers, business partners and prospects. When the global pandemic became evident in March, we immediately assessed how best to assist our then current customers and prospects. We are happy to report that our disciplined, uncompromising credit culture, coupled with our focus on assets that are integral and essential to the ongoing operations of the customer, once again proved vital to Stonebriar Commercial Finance’s outstanding performance.

In 2020, SCF achieved record volume of $1.4 billion, its highest level of new business volume in its six-year history.

Operating income grew over 36% from 2019, highlighted by zero credit losses for the sixth straight year. We were able to meet and exceed the challenges brought on by the pandemic due to the skill, dedication and tireless effort of our staff.

Brent Hall: The biggest challenge that we faced in 2020, like many companies probably, was the very rapid transition to a remote work environment. Our IT group had to rapidly deploy additional hardware for home offices and set up a new system for remote meetings which, in our case, was Microsoft Teams. We also implemented electronic documentation.

Justin Nielsen: The pandemic and economic shutdown last year put significant stress on our customer experience approach, as we were forced to make emergency adaptations to our systems. One crucial example was in mid-March of 2020; we identified the urgent need to institute a payment-relief program for our lessees.

It was obvious with the complete economic shutdown that many of our lessees would certainly see an abrupt decrease in revenues and a likely potential for payment impairment.

We “rolled up our sleeves” to create a pre-packaged payment relief plan for our lessees who requested assistance. This took considerable work (often requiring department leaders to work around the clock) and collaboration with each of our wonderful funding partners to complete. It was incredible to watch the Onset team institute such a monumental task in a very short period of time.

By April 1 of last year, we were proud to offer each and every lessee who requested help a temporary payment-relief program. Not one of our customers was declined. We knew we were one of the fastest to bring this fully documented, pre-packaged payment relief to market, as several of our funding partners asked if they could have and use our “CRP” (COVID Relief Program). We were flattered at the request and of course gave it to them freely.

Additionally, many of our customers were frustrated that none of their other lenders or lessors offered them any payment help during the crisis. Our lessees were extremely grateful that we had this in place to help remedy their unexpected cash-flow constraints. Ultimately, we were able to offer our CRP to a large number of our lessees. Not only did this protect the overall performance of Onset’s portfolio, but more importantly, it helped us provide the best customer experience we could during extraordinarily difficult global economic circumstances.

How has the cost and availability of capital changed over the last year? 

Fate: As we have noted in our recent press releases, SCF continued to access the capital markets in 2020 with high demand for our securitized products at the very attractive rates. Our 20-1 and 21-1 ABS issuances were met with record demand from over 70 investors made up of the world’s largest asset managers, insurance companies and other institutional investors.

The markets are very liquid right now with significant amounts of cash looking for quality investments. The past performances of our existing issuances, illustrated by continuing rating agency upgrades, have shown that SCF is a sound and trustworthy investment. SCF’s $1 billion revolving credit facility provides liquidity to operate the business.

Hall: The cost of capital has remained quite low, with no movement in interest rates and strong demand for small ticket equipment lease and finance business. We’ve actually seen a decrease in pricing, and availability has been excellent, with more capital providers chasing fewer quality assets. In our capital raise, which took place in Q1/21, we were oversubscribed, having come to market with a $20 million offering and ending up with $25 million in under two weeks.

Nielsen: Funding availability was a dramatic roller coaster last year. While Q2/20 was Onset’s worst funding quarter in recent history, we significantly recovered by exceeding our quarterly funding record in Q4 and actually wrapped up 2020 by achieving our highest annual fundings in company history — what a year! That said, there was definitely a capital supply and demand issue in Q2, which was certainly understandable and most definitely self-explanatory.

Looking back, it was impossible not to feel the unsettling uncertainty regarding how long the financial markets would take to return to even a resemblance of normalcy. Thankfully, Onset Financial experienced a swift and healthy return of capital availability while debt rates remained competitive compared to previous years of strong global financial markets. It was so refreshing, and frankly, quite relieving to see the capital debt markets snap-back into normalcy at the beginning of Q3, which was a much faster return than the overall national economic recovery. Obviously, this lightning-fast recovery was dramatically impacted by a combination of federal relief programs and stabilizing equity markets after a very bumpy Q2. In summary, considering the Herculean challenges of the pandemic and economic shutdown, capital availability and low debt rates remained constant throughout 2020 with the exception of Q2.

What is your outlook for equipment finance in the year ahead given the macro forces at play (political, pandemic, etc.)? 

Fate: We remain very optimistic for equipment finance in 2021. The economy is growing, demand is trending up in most industries and many consumers are in the best shape they have been overall, with higher personal savings, stronger net worth and less debt. Over $5 trillion of high yield debt will need to be refinanced over the next several years, and significant government spending during that same time would likely drive additional CAPEX needs.

It is important to note, however, that higher taxes and increased regulation, as proposed by the current administration, could temper the growth of CAPEX spending. The equity markets are at record highs, interest rates are still low and companies are flush with cash. The outlook for the equipment finance industry is strong for the near-term.

Hall: We are very bullish on 2021 and expect to grow our business 38%. It is expected that GDP growth will be 4% to 6% this year and there is a lot of pent-up demand for CAPEX. Even though employment is higher, the other economic indicators are quite good, with many companies faring very well during COVID-19 and poised for strong growth this year.

Nielsen: Looking at our current macro-economic environment with total positivity, I’m thrilled at the potential opportunities that lie ahead. There are so many wonderful things happening that I believe will be monumental for the equipment leasing industry. The federal government has flooded trillions of dollars into the market. Hopefully, this will have the desired effect and jumpstart consumer spending, which directly impacts the economic food chain. Companies across the country will need to grow to meet increased demand. Equipment leasing should thrive as the national economic engine begins to hum again.

Additionally, the current administration is moving forward with trillions in infrastructure spending. Again, how can this not be an absolutely huge and potentially industry-changing positivity? Sure, economists may argue the long-term adverse effects this surge in the national debt will have on taxes, the value of the dollar, inflation and artificially low interest rates; however, as it relates to equipment leasing, I believe a major spending flurry is coming and equipment lessors need to be in the best position possible to capture the new funding opportunities.

Don’t forget the stock market! The Dow continues to perform at a record-breaking pace which also drives confidence in capital markets. This should keep capital availability in a state of high liquidity, so there will be plenty of dollars to fund the increased equipment demand. By way of disclaimer, we were hit so hard and fast by the pandemic and it seems the news outlets are constantly reminding us of the very real potential for new virus surges and variants that could quickly send us back into lockdown. So, we still need to always act with prudence. However, it should be obvious I’m extremely bullish on the equipment leasing industry in 2021 and beyond.