American construction is in the middle of a roller coaster of disruption. Demand is growing as the squeeze in supply has caused housing prices to skyrocket and the demands of working from home are forcing professionals to invest in renovations.
Meanwhile, supply chain bottlenecks have driven the prices of raw materials like lumber up and then down, as the industry continues to grapple with some of its oldest problems, including the common reliance on paper-based workflows that can create painful B2Bs. late payments.
Construction demand is on the rise and these projects need financing, but for construction lenders it is not easy to juggle the myriad of factors influencing borrowing needs and risk profiles.
Land Gorilla CEO Sean Faries said pandemic trends have worsened on factors that have been going on for decades, all contributing to an environment in which construction and renovation is badly needed, but continues. to encounter obstacles. Access to the capital required to power this build is one of the most difficult to overcome, and yet, as he told PYMNTS, it remains essential to maintain cash flow from builders to suppliers, contractors and The subcontractors.
Traditional construction and financial services spaces have struggled to modernize quickly, but Faries said these industries “are experiencing their revolution as we speak of the digital world.”
This is good news for construction loans, but having the ability to keep up with the various disruptions and market developments that impact borrower demand and risk profile cannot be achieved by digitization alone.
Working with a third party who offers the industry expertise to manage a construction loan can be a valuable strategy, and Land Gorilla has positioned itself to operate even more transparently with lenders through a partnership with Jack Henry, whose banking customers can now exercise loan management technology in a more efficient and integrated manner in the back office.
This efficiency is imperative for lenders to gain visibility in the construction industry.
âWhen you involve third parties like construction lenders, who are not there on the job site to monitor, who is monitoring? Said Faries. âThis is really where it gets complicated.
Traditionally, lenders have used three aspects to mitigate risk: physical, financial and legal. Before funds are disbursed, lenders should have a clear view of the property being built and ensure that it is free of liens. In addition to ensuring that the necessary construction is done, these lenders also need to be confident that the work has been done correctly and in a compliant manner.
Today, Faries noted that there is a fourth area of ââinterest that construction lenders must prioritize: reputational risk, which can be affected by slow disbursements or a friction-filled borrower process. .
Acceleration of disbursements
The speed with which funds are disbursed has become an increasingly influential part of a lender’s reputation thanks to the pressure on the construction industry to overcome supply chain issues, respond to the intensifying demand for inventory and supply; and addressing B2B payment delays that have long plagued suppliers, contractors and subcontractors.
Faries pointed out how common it can be for a supplier to wait up to 120 days to receive payment, if payment is ever received.
âBeing able to reduce those payment terms from a few months to a few days is something really impacting in the industry,â he said, highlighting the ability of a third-party loan management solution like Land Gorilla to accelerate loan disbursements.
This speed is the result of application programming interface (API) integrations and infrastructure-level system connectivity, as well as industry-level expertise to assist construction lenders. understand the market, assess their risk appetite appropriately and proceed with confidence. As builders scramble to tackle a housing shortage and keep pace with renovation demands, lenders will also need to step up their digitization efforts to understand risk and optimize the borrowing experience.
This can have a profound impact not only on the ability of builders to finance projects, Faries said, but also on empowering the industry to smooth cash flow and late payments down the line.