So, you are ready to become a licensed contractor! That’s great, as getting licensed in particular trades or fields of the construction profession, whether a general building contractor, general engineering contractor, or specialty contractor (electrician, plumber, HVAC, framing, painter, or in other specialty trades as required by your state) is a first step towards a more lucrative and fulfilling livelihood. We’ve detailed the benefits of getting your contractors license. On the homepage, our guide to the requirements to become a licensed contractor in all 50 states will help you get a head start.
However, becoming licensed is not only about passing an exam. There are fees, financial requirements, bonds, and insurance costs. In fact, the barrier to entry and requirements that businesses have assets, are bonded and carry insurance are key parts of why using licensed contractors is increasingly attractive for consumers. Licensure provides accountability and protection for you and your customers in the event of dispute, accidents, or problems with workmanship. So, given the costs involved in becoming licensed, we decided to highlight new ways that you as a savvy contractor could raise the capital needed to get your business of the ground.
What You Will Learn In This Guide
We will talk about new, creative ways to raise money for your licensed building contractor business. Obtaining and maintaining your contractors license has significant costs, which can be hard to raise for someone just starting out in their trade. Many contractors we know are living hand to mouth, with each new job paying for basic equipment and materials, transportation, and advertisement, paying off subcontractors. Cash flow is always critical, but especially in the early stages of your business as you cover start up costs and become established. Read on to learn how new crowdfunding companies can help you launch your contracting business!
Typical Costs to Get Your License
Getting licensed is not free. The application process itself will cost hundreds of dollars for processing fees, licensing fees, and additional fees for each specialty license classification you obtain (e.g. California has 41 separate specialty license classifications!) You may also be required to post a bond (examples of bond requirements include $12,500 in California, $5,000 in Alabama, $1,000 in New Jersey). There are also fees to get fingerprinted, print certificates, and the like. In order to prepare for your exams, you might take classes (in person or online) or purchase study guides, reference materials and books. Liability insurance premiums are another significant expense. For example, our article on obtaining 1 million dollar liability insurance shows such premiums can cost.
What are your assets? You may already have tools, but you need to buy more. More tools (or partnering with other contractors who have tools) lets you take on more jobs. You need a good sized vehicle, or you’ll be asking your customers to pick up supplies from home depot, which lowers your professionalism. So, as you can see, there are lots of fixed capital and operating costs associated with your construction business.
Your Business Needs Steady Cash Flow
Maintaining sufficient cash flow in general is a problem for every business, but especially in the building trades, where work is often performed before money is collected. Inadequate cash flow is a business killer.
So, how do you raise money? Traditional loans may be off limits, getting cash advance off of a credit card is enormously exensive and may not be available. Family may only be able to give a small amount. If you are just starting out, you probably don’t have the established, documented receivables yet to qualify for invoice loans or merchant loans off of credit card receipts (though these are also costly sources of finance). Typically, a renovation or construction business is not a startup that can guarantee an angel investor a 1000% return on invetment, so where do you turn for funds to finance your budding enterprise?
Getting Funded by…Everyone!
In comes crowdfunding. You’ve probably already heard of it. Those funding campaigns that get picked up by the national news, where someone raises money from strangers to help a usually heart tugging cause. Is there space in this new world of public fundraising for your small business?
Turns out there is! Below are sources that welcome small businesses to raise money on their sites for any purpose.Some sites are more or less restrictive in the types of projects or goals they allow or focus on types of projects or business (film, art, etc.) there are also different models of crowdfunding. Some are straight up awards, with individuals gifting the money to start your venture (like the popular GoFundMe site). Others are debt to pay back or equity inviting other investors to come in. Below, we’ve done the research for you, identifying x sites that allow small contractors to raise the funds to launch their business to the next level. Let us know in the comments about your experience with any of the following. (Also feel free to share other sources of crowdfunding not listed here!
Crowdsource Fundraising Platforms
Each of the following sites allow you to accept donations for your cause (business startup, equipment purchase, certification, etc.), enabling you to raise the money you need by spreading out your ask over many different people, usually family, friends, supporters and your social network. Note each of these platforms charges a flat fee (usually a percentage of funds raised or goals) plus per transaction fee. You might wonder why Kickstarter and others are not here. If it’s not listed, it’s likely because it has a specific focus (e.g. Kickstarter is geared for creative projects.)
IndieGoGo is one of the oldest and most well-known crowdfunding platforms. They have multiple funding models, either fixed or flexible funding and no set up fees. Under one model, they charge one amount (currently 4%) if you are successful and another (9%) if you are not. On the other model, you are not charged if you are unsuccessful, but the money is then refunded to your contributors less third party fees.
GoFundMe is a popular crowdfunding site used to raise funds for projects and personal causes. They brand themselves as #1 do-it-yourself fundraising website to raise money online.
FundRazr offers a twist on the crowdfunding model, as it is a social media crowdfunding site. By default their platform helps you raise money through your social networks, embedding campaigns onto your Facebook pages and more.
Another platform to consider is CrowdRise, another site that welcomes individual fundraising, along with charitable fundraising. They boast they have the lowest fees in the industry.
FundAnything.com is another platform geared to individual, unique fundraising goals.
Peer to peer investing and lending platforms
These sites offer options for getting the cash needed to get your business up and running or paying down costly debt you took on to start your business in the first place. If you need an alternative to a traditional loan, then a peer to peer lending site could be the right answer for you.
While a viral fundraising campaign might get strangers to just donate money to your personal cause — launching your contractor business or raising the bond requirement or purchasing a piece of equipment, etc, you could attract a larger pool of funding by going after investors. Strangers looking to make a return on their dollar (or other unit of currency) might invest in your company for interest (loans) or an equity position.
Lending Club a large credit marketplace, connecting borrowers and individual lenders. Rates for the kinds of projects they fund are lower than from typical sources of credit like credit cards or store lines of credit.
Prosper is another credit marketplace facilitating direct person-to-person lending.
Tips for Successful Crowdfunding Campaigns
Some general tips to have a successful crowd funding campaign from Entrepreneur.com include the following:
- Pre-launch is as important as the launch.
- Having a team (vs going solo) is essential.
- Embrace a mix of personal (email) and social media.
- Marketing means engagement, not just one way announcement
- Get creative and personal in describing yourself, your goals, and creating perks for investors
Tips on how to crush your crowdsource fundraising campaign in 1 day.