The construction sector, like so many others, dealt with a sharp downturn in activity as COVID-19-related restrictions were introduced in March 2020. How the sector would rebound was a source of speculation throughout that spring and into the summer.
Benjamin Johnston, chief operating officer of New York-based small business financing firm Kapitus LLC, says contractors and subcontractors who serve the residential construction sector have shifted from seeking financing to survive to seeking financing to purchase materials and expand payroll because of a healthy volume of new business.
Although the Kapitus customer base consists of small business owners, the firm itself has provided more than $3 billion to some 50,000 small businesses since 2006. That total includes Paycheck Protection Program (PPP) loans tied to the government’s COVID-19 business relief efforts.
In an interview with Construction & Demolition Recycling, Johnston cites several factors—including the work-from-home trend—that are likely to keep residential housing spending lofty, providing work for contractors, C&D recyclers and demolition contractors in places where old buildings or dwellings will make way for new.
Construction & Demolition Recycling (CDR): What are the challenges facing residential construction businesses?
Benjamin Johnston (BJ): A year after the world shut down due to the COVID-19 pandemic, construction businesses continue to grapple with the fallout. While states have mostly lifted restrictions, demand surges in residential construction and supply chain disruptions have made certain materials scarce, creating long lead times and cost overruns, putting additional pressure on contractors trying to service their clients, pay their employees and still have something left for themselves.
As we near the end of the pandemic and one of the longest, coldest winters in recent memory, the PPP program may provide the relief many construction companies need to see them to the other side of this crisis.
CDR: What are some of the things residential construction companies need to be aware of if they received a PPP loan?
BJ: A second PPP draw is a great opportunity for construction companies that have seen a drop in business due to COVID-19 to stabilize their financial situation. The capital is intended to help business owners pay employees, pay outstanding rent and other bills, and invest in reopening and getting back to business. This is a five-year loan carrying a 1 percent interest rate, so it is some of the lowest cost financing small businesses will find.
Much, if not all, of the loan is likely to be forgiven just by paying bills and employees, so the program has tremendous benefits with limited downside. However, 60 percent of the forgivable amount must come from payroll, so if your business has reduced its staff significantly from pre-pandemic levels, not all of the loan may be forgiven.
CDR: How do you see the residential construction sector faring this year?
BJ: We at Kapitus are very bullish on the small business economy in 2021 and are especially bullish on the residential construction sector. During the pandemic, Americans spent considerably more time at home and invested heavily in new properties and home improvements. We expect this trend to continue in 2021 as many Americans continue to commute less and work and to better their homes and property. At Kapitus, construction is our largest and fastest growing industry sector. Over the past 15 years Kapitus has provided nearly $500 million in financing to approximately 8,000 contractors. Given the activity we are seeing the space today, we expect construction to be our largest sector again in 2021.
CDR: What are some actions businesses/contractors can take to make sure they’re on solid financial footing in 2021?
BJ: As businesses look to take advantage of the growth opportunities in the market, it is important that they not let their expenses get too far ahead of anticipated work. That being said, when a company needs capital to staff up and purchase equipment in order to add new jobs, it is important to have a financial partner who can supply needed capital quickly and dependably. If you anticipate the need for growth capital in the coming year, talk to your bank or to a small business finance company, like Kapitus, to determine what you qualify for and what products are right for you.