Softcore mayhem descended on America’s banking system in March 2023, when two big whig banks abruptly closed. Economists like AGC’s Ken Simonson were uneasy, fearing the uncertainty in financial markets could spill into the construction industry. With a lot of folks casting a critical eye on banks, Billd believes that now is a good time for subcontractors to take a long hard look at who they’re banking with and whether those banks are truly meeting their needs. We chatted with Billd team member Zach Glankler, who has over 13 years of experience in finance and previously worked in banking, to explore Billd’s take on banks as a financial option for subcontractors.
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Trends in Banking that Are Making Things More Difficult for Subcontractors
- Hesitance to Lend to the Construction Industry: Subs aren’t the only ones who dislike long, uncertain payment cycles. Banks are more hesitant to provide credit to the construction industry because they don’t like its receivables cycle. Payment takes an average of 74 days, and that’s not as common in other industries. Some subs have even seen their bank lines of credits closed because the bank was wary of the risk associated with the industry. Billd asserts that that’s simply not fair to subs. Subcontractors build America, but because of industry features they have no control over, they have limited credit availability unseen in other industries.
- Bank Consolidation: Banks have consolidated considerably in the last few decades, merging and acquiring each other. That means it’s harder to find a local or regional bank where you can forge valuable banking relationships, one that invests in your community and helps you get traditional banking resources.
Why Banks Are a Limited Credit Option for Subs
Large banks like Chase, Bank of America or Wells Fargo may be conduits for loans or financing vehicles, but Glankler doesn’t often see lines of credit or other financing tools from these banks that support subs on an ongoing basis.
No banks stand out as the best ones for securing credit. Even if you have a depository relationship with one specific bank, that won’t necessarily make it easier for you to secure credit. Larger banks will generally be more difficult to get substantial credit with, and if they do offer it, it’s most likely not going to be at the level that you need. Often, banks will offer limited lines of credit, and if a subcontractor puts even a single material purchase on it, it eats into a majority of that line. Smaller regional or local banks may have better odds of helping you get a line of credit, especially if you’re a midsize sub.
The fact of the matter is, neither regional nor national banks are providing sufficient credit for contractors. That is, in part, why Billd exists. If you feel like your bank isn’t supporting your credit needs, consider shopping around for a new one. If you have one bank that is willing to extend a line of credit and one that’s not, you can potentially leverage that in your favor. Put simply, you can introduce competition.
What Factors Subs Should Look At When Choosing a Bank
Relationships You Can Leverage: You can’t underestimate the value of having a relationship with your banker, especially as you’re growing. If you’re looking to obtain credit, they need to understand you and your business. This component is more of a factor with regional banks, and we’ll dive into why that is later on in the article.
Overdraft Protection: This may be particularly helpful in the construction industry, since cash flow is so inconsistent. Glankler has seen smaller and regional banks that will allow subs to go significantly in the red without penalty.
Interest Rates: Interest rates are rising, so now more than ever, you see people shopping around and looking for the best rate they can get on their accounts. Is your bank offering you a favorable or competitive interest rate? Don’t immediately jump to a new bank based on a better interest rate, but do your research to create a well-rounded picture of the bank you’re considering.
Reputation: Make sure the bank you’re working with has a good reputation, is established, and if possible, find out if they are construction-industry-friendly. Most banks just don’t love the receivables cycle in this industry, which is why supplemental tools like Billd are important to maintain.
How Subs Should Approach Relationships with Their Bankers and Why It’s Important
According to Glankler, when you get into these larger national banks, your point of contact is probably someone on the customer service line. But with regional and local banks, you have a much better chance of speaking with an account manager who has more sway in the decision of how much credit you get. If a bank rep says, “We’re going to shut down your line of credit,” or if you communicate that you’re going to have a difficult month or need more credit, that open line of communication goes a lot further for your business. With larger national banks, you won’t usually access a decisionmaker who will take the nuances of your situation into account. Smaller institutions benefit from a more human approach, taking the bigger picture of your business into account, rather than reducing you to a set of numbers. Billd also abides by this ethos. In fact, Billd can also provide credit reference letters to help you establish credibility with a bank.
No one can make a blanket statement on “the best” bank to work with or even the best type of bank. Each one offers its own merits and drawbacks that subs have to individually assess. This article is simply meant to provide additional thinking points on banking, from the perspective of a company who puts the subcontractor first.