As the economy continues to improve, construction spending is ramping up and financial institutions are taking note, implementing new technologies designed to speed up and streamline the construction loan process.
For example, earlier this year, Chicago-based Countryside Bank – 56% of whose entire loan portfolio consists of construction loans – implemented a new product from BankLabs. Called +Pay, the tool automates payments between contractors and subs through electronic lien waivers, invoices, and other technologies that keep projects running smoothly.
It’s almost hard to believe, but did you know that 85 percent of payments made by builders to subcontractors are paper-based? That’s according to Matt Johner, the president of BankLabs. “There’s a lot of digitalization around business-to-consumer payments, but not as much around B2B, so we see a real opportunity here,” he told the American Banker.
In the aftermath of the 2008 housing crisis, lots of banks were leery of underwriting any construction loans at all, let alone investing in how they would administer them. Now, with the economy improving, lenders are actively looking at ways to get back into the space, and technology appears to be a big drawing card. Companies like BankLabs, the fintech startup Built Technologies, and other traditional lenders like Fiserv are all active in the space trying to streamline the cumbersome, confusing, and mostly manual loan administration process.
For builders and owners too, digital loan tools make lots of sense. Automating the lending process and getting subs paid faster can keep a project moving quickly, prevent bonding off costly lien filings, and improve the mostly adversarial relationship that currently can exist between contractors and their subs, all while keeping subcontractors from leaving a jobsite for the next project – saving everyone time and money. In an industry where margins are thin, this is low-hanging fruit that technology can easily capture.
Analysis from AEC Labs:
American Banker also makes the interesting point that as many millennials are taking the reins at family-owned general contracting firms, they are looking for lenders that offer digital tools and other technology that aligns with their expectations for doing business in the 21st century.
Clearly, starting with the customer here will be a benefit for banks, lenders, and fintech startups that can improve the construction loan experience, which historically has been nightmarish for everyone involved in the process.
Indeed, last year, we highlighted the Nashville-based Built last year. At the time, the startup observed that “[construction lending] is a trillion dollar industry that affects every single person in this country and yet it’s been extremely underserved by technology, specifically the way construction loans are managed. We use modern technology to connect everyone involved in the construction process. Everyone can see what is happening at all points in time and can request funds to push the project forward in a much more safe and efficient manner.”
Do you expect fintech to continue moving into the construction lending, payment, insurance, and surety space in 2018 (as we predicted)?