Despite mounting economic uncertainty, subcontractors didn’t slow down in 2022. From the survey, 61% of subcontractors grew revenues in 2022 and even more plan on doubling down in 2023.
While subs are waiting over two months for WIP payments, banks and lenders are sitting on the sidelines. Only 45% of subcontractors relied on lines of credit to purchase materials and just over half anticipate tapping theirs for growth. Meanwhile, supplier terms, what used to be the most relied upon cash flow solution for subs, are becoming less so. More than half of the participants reported insufficient supplier terms and 32% had those terms cut down in 2022.
America was built by people using other people’s money – and subcontractors are no different. With increased financial pressures, subs are 2x as likely to use material financing to support new business growth, invest in their business, and address increasing input costs.
Banks and Lenders Aren’t Financing Construction, Subcontractors Are
Historically, banks have been reluctant to lend to the construction industry, which limits subcontractors’ financing options. Meanwhile, subcontractors are the ones executing the work AND fronting the material and labor expenses.
The report illuminates just how much subcontractors are spending to finance construction, and it’s no small figure – they are putting forth billions more in materials and labor than they should have to. In fact, it amounted to an extra $97 billion in 2023.
Subcontractors See Growing Revenue, But Minimal Profitability
Despite a majority of respondents seeing revenue growth, the majority also reported a decline in profitability. The $97 billion extra dollars that subcontractors fronted might have something to do with that.
Subcontractors also reported difficulty raising their bids. This inevitably eats into their profit margins, no matter the volume of new projects coming in. The difficulty around securing and maintaining the capital to fund these projects also contributes to strained profitability.
The Labor Shortage Is Worse than Ever, and Material Volatility Isn’t Stressing Subcontractors
Subcontractors think the labor shortage will be a greater threat to their business in 2023 than any other economic factor. Labor costs are increasing and availability is shrinking. We’ve known this for a while, but the situation seems to be getting dire. The report expands on why subcontractors are making this assessment.
Suppliers Terms and Relationships Alike Are Becoming Less Reliable
The relationships between subcontractors and suppliers have always been critical to project and business successes. But long lead times, price hikes, unpredictable pricing and inflexible terms are straining those relationships and putting subcontractors and suppliers in a tough spot.
This forced subcontractors to seek out new suppliers in 2022, then establish credibility and trust from scratch. Meanwhile, terms fall short in almost every department even though they remain subcontractors’ favorite way to buy materials. At an average of 30 days, they’re not long enough for subcontractors to actually get paid. They’re also becoming less reliable, with a third of subcontractors saying their terms were shortened in 2022.
Subcontractors Remain Optimistic about Business Growth
Despite the current state of their profitability, cash flow and ability to secure financing, subcontractors are displaying an admirable degree of optimism around business growth. With greater access to tools and subcontractor-specific financing, 2023 could be the year the industry bucks the trend of reliance on unsustainable financial practices.
Along with a wealth of subcontractor responses and industry analysis, the report also sees Billd CEO Chris Doyle offer his veteran perspective on the current state of the market. To download the full report, simply click the link below for free access.