In today’s era where India continues to grow towards infrastructure development and where the construction business is expected to rise and grow in the coming years, there is a huge demand for construction companies. It is one of the top industries for getting your business started in India. Seeing this economic trend, many business entrepreneurs are getting attracted to the construction business. Although it requires a lot of patience and dedication, the rewards which you get really make all those efforts worth it!
Why Are Business Entrepreneurs Seeing Construction Companies as Profitable Businesses?
The demand for construction businesses is sure to increase in the coming years thanks to the increased urbanization and technological advancement in various parts of the country. As long as things continue to grow at the current pace, the construction business and infrastructure sector of India is anticipated to grow by approximately 15% as regards compound annual growth and reach approximately $738 billion by the end of the year 2022. Until today, the construction business held a 55% share in steel, 30% in glass, and approximately 15% in the paint industries of India.
The construction business has manifested a constant positive trend in the past with 2.9% growth between 2011 and 2015, thereby resulting in a huge bounce in the growth rate for years 2016 to 2020 with over 5.6% growth.
With these major positive statistics of the construction business in the past few years, entrepreneurs see it as a profitable business opportunity for upcoming years.
Things to Remember While Starting a Construction Company
Before starting the construction business, the entrepreneur is required to understand the amount of preparation and work that is involved in it. The following are the points to keep in mind while starting your own construction company:
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Ascertain licensing requirements:
As the construction business is not like other businesses, the guidelines required vary from other businesses. Before starting the business, make sure you obtain a permit or a license from the council office as it acts as a type of certification to run the construction business.
- Find the perfect location for your business:
Just like other businesses, construction businesses also require a prime location that has adequate space and office as this becomes the place where clients approach your construction business.
- Obtain necessary equipment:
Once you have acquired the license and chosen an appropriate place for the business, it gets easier to obtain construction equipment. Tools required for office work can also be included.
- Establish an initial budget:
Remember to determine an initial budget if you are a first-time business owner as it helps to streamline the business and also aids in overcoming any sudden cash crunch.
Process of Starting a Construction Company
Setting up a new business of any kind has never been an easy task; it always comes with challenges and hurdles. Hence, it’s important to know the factors that come into play. Mentioned below are the factors that should be considered:
- Create a business plan:
This is the one common factor that applies to all kinds of businesses. The first step to start your business is to plan for everything beforehand through which your business gets immune to unexpected losses in the near future. The business plan should contain all the details including the nature of business, budget, goals, required working capital, target clients, how you plan to market yourself, and, most importantly, the staff. The plan should also cover details of capital, marketing strategies, and expenses for a specific time. Plans always help your business be on track and increase the likelihood of success.
- Perform thorough research:
To outperform your competitors, you need to be a step ahead of them and play smarter; hence, the entrepreneurs should conduct a complete background check and analyze the construction requirements in the locality or society as analyzing how many construction companies are already operating in the area gets important to plan out further. Along with this, entrepreneurs are also required to perform a thorough study of the rules that control the construction business, which are specific to a state or country. Area-specific construction depends on the property type, whether it is residential or commercial. Some sites require flats to be constructed, whereas others require offices, shops, and malls.
- Registration for business:
Getting your business registered comes next. After drafting a plan and conducting research, the next step is making your business a legal entity. Under the Companies Act, 2013, a new construction company needs to get registered under the Ministry of Corporate Affairs (MCA). The business can be in any form, be it sole proprietorship, partnership, limited liability partnership (LLP), and company (public or private). Once your business is legalized/registered, you need to obtain a GST and sales tax registration number and also apply for a PWD license, TIN number, and EPF registration.
- Networking with the business workforce:
After getting the business registered, the entrepreneur can start building his network and develop healthy relations with business associates, suppliers, builders, and other contractors. Since you cannot do all the work by yourself, forming relationships with personnel and the workforce is highly recommended; this not only helps in growing and expanding business but also attracting new clients. Construction business primarily depends on the labor, who are employed by brokers, mediators, and independent contractors; thus, maintaining and developing relations with them can be of great help.
- Forming contracts with transport vehicles:
Logistics form an integral part of construction companies as they are used frequently to transport the raw materials from one site to another. Business owners can form contractual relationships with them to avoid hassle at the last moment.
- Getting the business insured:
Insurance is crucial for every business nowadays. As the construction business inherently involves some danger, making sure you are covered under an insurance policy is important. Once your assets and workforce are fully insured, you can easily put aside all the risks associated with your business. Some states require valid workmen compensation insurance as well. So, the sooner you start to plan about insurance the better.
- Financing your business:
Finally, you must ensure that you have enough money in your pocket to start up the business. Apart from savings, you can also secure your funding from a business loan as the fact cannot be denied that the construction business requires a lot of funding. Therefore, entrepreneurs are advised to go for a business loan to procure tools and equipment. Funds are also required for everyday business operations; hence, it aids in overcoming cash crunch situations. Indian banks offer various types of loans such as term loans, working capital loans, overdrafts, equipment finance, and line of credit finance.
Documents Required for Starting a New Construction Company
The following are the documents required for establishing a new construction business:
- A well-drafted plan
- ID proof of the applicant
- Passport-sized photographs along with duly filled application form
- Applicant’s Aadhar card
- Registered Business PAN card
- Establishment certificate of the construction business
- Electricity or water bill as a proof of address
- Bank statement of the business/applicant for the past 12 months
- Rent agreement document
- Copy of GST registration
Obtaining a Loan for Construction Business
Various banks today offer small- and medium-sized enterprises and real estate loans for infrastructure. Mentioned below are the different types of loans offered by the banks for construction business:
- Term loan
- Working capital loan
- Overdraft
- Equipment finance
- Line of credit finance
Out of the above-mentioned types, term loans and equipment finance are common choices as tools and equipment can be easily financed through it, and it also helps achieve short-term business goals.
Indifi Business Loan Fees & Interest Rates For Construction Business
Following are the business loan fee & interest rates for construction business.
| Customized Interest Rates | Starting @1.5% PM |
| Processing Fees | 3% |
| Loan Tenure | up to 3 years |
| Pre-closure Charges | 4% |
| Eligibility Criteria | > 5L Turnover in last 6 Months |
| Loan Amount | ₹ 50,000 – ₹ 1 Crores |
| Installments | Monthly |
Documents required to avail of the loan
- Aadhar card
- Address proof of self and firm
- Income proof of the owner
- A completed application form
If you are looking for flexible and transparent loan tenure and repayment modes, Indifi is just for you! Most small businesses struggle with timely loans; however, at Indifi you can get easy loan origination and grow bigger and better.
FAQs on How to Start a Construction Company in India
- Does starting a construction business in India require high-end investments?
Establishing a new construction business indeed is a costly affair as the equipment and tools are costly. However, starting with a business loan can help and is also gaining popularity nowadays.
- Is the construction business a successful one in India?
Undoubtedly, the infrastructure and construction businesses are soaring heights in India due to the increased demand and urbanization.
- Where can I get a certificate of registration for a construction business?
The construction businesses are registered under the MCA, and you can easily get the certificate of registration by applying online from their official website.
- What are the steps to register as a private limited company for a construction business?
The following are the steps to get yourself registered as a private limited company:
- Get a digital signature certificate and director’s PIN (DPIN) by applying.
- Obtain DIN from the website of MCA.
- Verify the name availability for your desired name from three options.
- Then, download the SPICe INC 32 (simplified proforma for incorporating a company) form, and after filing it, submit the form to MCA.
- Draft a memorandum of association (MoA) and articles of association (AoA).
- Obtain corporate identification number (CIN) for incorporation certificate.
- After receiving the incorporation certificate within a week after applying, you can now proceed to apply for PAN, TAN, and bank account.
- Will I have any tax benefit on a business loan for my construction business?
Yes, the loans for construction businesses, just like other businesses, come with tax benefits. The interest which you will pay for your loan is subtracted from your gross total income.
- Can an LLC apply for a business loan?
Most of the banks do not finance LLC in India; although it is possible to apply for a business loan by LLC.
- Does the credit score of a construction business owner play a role in acquiring a business loan?
Definitely, the credit score plays a vital role in the amount of loan to be sanctioned either to the business or to the business owner.
- Can a sole proprietor or partnership firm in the construction business apply for a term loan?
Yes, these businesses can go for a term loan from any bank or financial institution in India.
- Is getting my construction business insured mandatory?
Although it is not mandatory, it is always recommended to get your insurance in place. It is only wise to get your business and workforce insured to avoid facing any unforeseeable loss or risk. Several banks in India offer insurance policies for heavy equipment, labor, and construction companies.
- Can a construction company apply for a loan?
Yes, the construction business entrepreneur can apply for a business loan for their company through any of the Indian banks or lending institutions.
- Can the loan amount be used for any other purpose than specified?
No, loans for business purposes can only be utilized for purposes such as the hiring of equipment, expansion, renovation, and spending on marketing.
