BSCi 7100 – Executive Issues in Construction
Financial Issues in Regard to Running a Construction Company
Banking Issues – Construction Loans, Starting a Construction Company
Date: Tuesday, November 14, 2000
Re: Class discussion in preparation for future guest lecturer Jerry Coleman, a commercial banker with SunTrust Bank in Columbus Georgia
Meeting Date to be: Tuesday, November 28, 2000, at 5:00 P.M. Central Time
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Attendees: |
Steven Williams |
Auburn University Professor |
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J. Douglas Martin |
Student |
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Lance Davis |
Student |
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John Feekes |
Student |
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Thomas Rhoden |
Student |
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Zac Wolfe |
Student |
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Hutch Peden |
Student |
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Ingram Thornton |
Student |
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Jamie Howell |
Student |
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Harlan Price |
Student |
1. General
The general discussion of this class session included the development of a list of topics the class is interested in having Mr. Coleman address. The following list of topics was developed.
2.
List of Possible Topics
1. What financial ratios really matter with regard to a contractor’s ability to get a loan?
2. What are the possible fixes if your company’s financial situation is out of line with these ratios and other bank considerations?
3. What are the common problems a construction company can have in obtaining a loan? How can these problems be fixed?
4. How much money can a construction company with $5,000,000.00 in annual construction volume reasonably expect to be able to borrow? What would its typical line of credit be?
5. Why does a contractor need to take out a loan?
6. How does a bank deal with late payments by a contractor? How does the banker deal with risky contractors?
7. What does a contractor need, as far as a bank is concerned, to start a new construction company? What type of paperwork is involved?
8. What effect does a minority classification have on the company’s chances for a loan? What effect does it have on the terms of the loan?
9. What are the most common reasons for a company’s failure?
10. How are commercial projects financed?
3. Example Project Scenario
After considerable discussion as to the best way to address the topics, the general consensus was to consider developing a fictitious case study based on developing a 25 unit Game Day Condominium in Auburn. It was thought that the following items would possibly be required by a bank for it to consider favorably a request for a construction loan:
1. A viability study for the project based, at least partly, on an evaluation of existing similar facilities, both in Auburn and in other cities with a college or university. It was mentioned that in Columbia, South Carolina, old cabooses had been successfully brought in along an abandoned side track near the university and renovated into game day apartments.
2. A study of how many people have purchased homes in Auburn exclusively for use on game days.
3. A listing of the connections the developer has to members of the target market
4. A listing of the number of condominium units that have been pre-sold
The class would like to know how such a project would be started and how a bank would evaluate such a niche market project. The development of some sample schematic sketches as part of a possible presentation was suggested.
4.
Additional Considerations
Professor Williams will discuss the list of possible topics and the fictitious case study with Mr. Coleman before the next class session to finalize the exact banking topics and project. Professor Williams will have Mr. Coleman address the differences between a construction loan, a commercial loan, and a line of credit in addition to the topics mentioned above.