How to start a Construction Company in India?
We live in an era of advancement, whether it is in the form of technology or urbanization. The shift towards an urban and more concrete world has set its foot in India too. As the country sees an age of infrastructure development, the construction business is expected to thrive and grow in the coming years. Naturally, seeing this economic trend, many business owners and entrepreneurs are wavering over to the construction business.
Why are business entrepreneurs seeing Construction Companies as profitable businesses?
The demand for construction will increase thanks to the increased urbanization and technical reformation in various parts of the country. So much so that if things continue to grow at the current pace, the nation’s construction companies and infrastructure sector is expected to grow by 15.7% in terms of Compound Annual Growth and reach approximately $738 billion by the year 2022. As of today, the construction business holds a share of 55% in steel, 30% in glass, and around 15% in the paint industries of India.
The business has shown a consistent positive trend of growth in the past with a 2.9% growth between 2011 to 2015, leading to a massive jump for the period between 2016 to 2020, where the growth rate was 5.6%. This, coupled with the increasing demand for construction to boost our nation’s development, acts as a catalyst for the construction business.
Owing to this major positive trajectory of the construction business, several entrepreneurs see it as a profitable business opportunity for the coming years.
Things to remember while starting a Construction Company:
Although the construction business seems to be brimming with employment and capital opportunities, it still holds a fair share of hurdles for smooth operation. This is why any entrepreneur who decides to kickstart their own Construction Company should keep the following key points in mind:
- Figure out your license and permit situation: As construction is a business like no other, the set of guidelines required for venturing into one’s own company is also slightly different from other businesses. Before starting a construction company, the individual is required to obtain a permit or a license for the business as it acts as a certification to run a construction company and purchase the required equipment/tools. The entrepreneur may acquire a permit/license from the council office.
- Find a location for the company’s office: Every business requires a mainstay place where all the planning and strategizing can be done. The same applies to a construction company where the entrepreneur should locate a central point as a company office, and this becomes the place where clients can approach the business.
- Acquiring adequate equipment: After acquiring the license for business, it becomes easier for the company to procure construction equipment. Other tools can include the ones required for office work.
- Determine an initial budget: This is important for first-time business owners because finalizing one’s financial goals and expenditures helps in avoiding any untoward loss that often occurs with fresh businesses.
Process of Starting a Construction Company:
A lot of factors come into play while starting a construction business. Let’s see them one by one:
- Planning for business: One factor common to any kind of business is efficient planning. When a business is well-planned, it is immune to unexpected losses. Thus, the first step for starting a new construction company is to set up a plan detailing the budget, goals, term of finance, collection of raw materials, equipment, projects, target clients, and expenses for a specified time. The planning techniques may either start from the inventory level and work towards the site or vice versa.
- Research work: It is only wise to know what one is in for when starting a new business. The entrepreneur should do a complete background check and assess the market. This should be followed by gathering a thorough knowledge of the regulations and rules that govern the construction sector, which is specific to a state, the type of sites, and projects available in the surrounding area. This will also help in planning out a better financial strategy.
- Business registration: Next comes officially registering one’s construction company. In India, a new construction company has to be registered under the Ministry of Corporate Affairs (MCA) as per the Company Act of 2013. The business can be listed either as a public or private limited company, partnership firm, sole proprietorship, or LLP. Once the entrepreneur gets hold of the registration certificate, he/she can apply for GST and Tax registration number, PWD License, TIN No, EPF registration required.
- Building business workforce: After the business has been registered, the business owner can start appointing personnel and workforce. This is key for a construction company owner because hiring a good task force will help build healthy relations among the community and attract a field of new clients. Any construction company will fail to take off if it lacks efficient labor, and it can be sourced from mediators, brokers, subcontractors, independent contractors, and hired employees.
- Affiliating transport vehicles: Transport vehicles are an integral part of any construction business. The entrepreneur can seek a contractual partnership with a suitable transport company that can be used to acquire vehicles as per the need.
- Insurance: Nowadays, insurance has become a vital part of the business. For a construction company ensuring the expensive equipment and tools as well as construction machinery or labor that may prove to hamper the company’s finances. Thus, it is smart to go for insurance.
- Business loan: There’s no denying the fact that the construction business is more on the high end of expenditure and capital requirements than others. This is why more construction company owners now seek a business loan to procure their machinery and equipment without draining themselves in heaps of debt. Indian banks offer a term loan, construction equipment loan, equipment finance, working capital loan, overdraft and line of credit finance, etc.
Documents required for starting a new Construction Company:
The documents required to establish a new construction business are:
- A drafted plan for the Construction business
- Applicant’s ID proof: Aadhaar, Driver’s license, or Voter’s ID
- Aadhaar card of the applicant
- Proof of address: Amenities bill, e.g., electricity or water bill
- Recent passport-size photograph of the applicant
- PAN card of the registered business
- Establishment certificate of the construction company
- Applicant or business’s bank statement (last 12 months)
- GST registration certificate copy
- Document of rent agreement
Getting a loan for construction business:
There are various banks today that offer SME loans to the owners of construction companies. The different types of loans available for the construction business are:
- Term loan
- Equipment Finance
- Construction equipment loan
- Working capital loan
- Line of credit finance
Out of these, a term loan and equipment finance seem to be popular choices as they help fulfill a short-term goal of the business like acquiring the basic tools and machinery that could extend the capital resources.
The steps to avail of a construction business loan are as follows:
- Visit the official website of a lending institution such as the bank.
- Select the type of loan you wishes to apply for and download the application form
- Complete the application form by entering the necessary details
- Attach the required document and submit the application form
- The loan shall be sanctioned once the verification process has been completed.
- Income proof of the business owner
- Address proof of the business: Amenities bills such as electricity or water bills
- The ID of the applicant: Driver’s license, Aadhaar or Voter’s Id
- A completed application form
For further information, the individual can also visit Lendingkart’s website. Lendingkart provides details regarding all types of business loans for the owners and helps in the loan application.
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