Construction is an industry where banks have a difficult time financing due to inherent risks. A few of those risks include:

• Subcontractor liens - A subcontractor can file a construction lien, also known as a mechanic's lien, against a property if they are not paid for work done on the property. This puts the bank’s first lien position in jeopardy

• Progress billing - A system that allows for periodic payments based on percentage of work completed. It often dissuades banks because of the lack of control and transparency of the system

• Limited control over fund allocation - The inability of banks to directly oversee how a company is using the loaned funds

• Cyclical nature of the market - During a construction company’s off-season, the predictability of loan repayments decreases so, bank’s are less likely to take the risk on refinancing or originating loans

For instance, one of our construction clients faced a slowdown during the COVID-19 shutdowns. As a result, their bank could not keep their debt and they were forced to exit.

After the pandemic, though, they experienced rapid growth and needed to employ staff for newly awarded infrastructure projects. So, Scott Deal – Flatbay Capital Partner and Market President – extended our Commercial Real Estate line to the client, and we partnered with an equipment lender to pay off the bank 100%.

This allowed the contractor to strengthen their balance sheet by extracting equity from their commercial real estate. The client was enabled to grow by taking on additional awarded business.

Do you have any construction clients or have a construction company in need of financing? See our financing options