Commercial Subcontractor, Let’s Unlock the Capital You Need Now.
In the world of commercial construction, subcontractors play a vital role in completing complex projects on time. Despite higher than normal stress, subcontractors often face a significant challenge when seeking a working capital line of credit from their bank. Many subcontractors find themselves turned away, frustrated by the traditional banking system’s reluctance to lend. I mean, you’re doing everything right …but the bank declined your LOC, and this adds to your stress. Am I right?
We list three primary reasons why banks shy away from financing commercial construction subcontractors. We also explain how Green Zone Capital Advisors can help you obtain the capital you need with less stress.
1. Progress Billing and Bank’s Perceived Uncertainty
One of the most significant hurdles commercial subcontractors face when seeking a bank line of credit is that they often use a “progress billing” method, which is typically required by their GC. But, why’s this a problem?
While progress billing is standard in the construction industry, it presents a problem for traditional lenders. Most banks in the U.S. actually have loan policies that forbid lending to companies that are involved with “progress billed” invoice methods. No Kidding!
Banks tend to prefer steady, predictable cash flows, with perfected lien rights, to reduce their risk. Progress payments can be delayed. Project delays and lack of lien waivers increase the bank’s perceived risks. “Pay when paid” contract language and inadequate financial reporting also add to these perceived risks. As a result, banks view most subcontractors as high-risk, and often deny them the credit they need.
2. Lack of Tangible Collateral
Banks typically need significant collateral to secure a working capital line of credit. For many businesses, this includes real estate, inventory, or equipment that holds significant value. Unfortunately, commercial construction subcontractors often lack enough tangible assets that banks consider acceptable collateral.
Most of a subcontractor’s assets are tied up in equipment that depreciates quickly. Materials are also consumed during the project. Additionally, any accounts receivable are often viewed skeptically by banks due to their dependence on the uncertainty of the progress billing system. This further compounds their difficulty in accessing traditional bank financing.
3. Perceived High-Risk Nature of the Industry
Banks view the construction industry as higher-risk when compared to other industries. Economic downturns can severely impact cash flow. Project delays also affect cash flow. Labor shortages are another factor. Fluctuating material costs add to the problem. These risk factors tend to be why commercial banks most commercial subcontractors altogether.
Listen, we aren’t bagging on the banking industry. The fact is, banks lend money, and they want it paid back with minimal risk. Ensuring liens are perfected on each project with each GC is essential, but it’s also time and labor intensive for banks to monitor this industry. So, what are your options?
The Green Zone Advantage
Green Zone Capital Advisors specializes in securing working capital for all industries including commercial construction subcontractors. We know what it takes to pull your financials together in the format lenders like to see. We know which capital providers would most likely fund your credit facility. And we get it done!
Our Green Zone process is proprietary. It is unlike anything you’ve seen before because we work for you, not the lender. Our goal is to educate, guide, and partner with you throughout the entire process — to set you up for future capital success. At Green Zone, we lead with integrity and transparency. Always!
Let’s Get Started Now
Reach out to Green Zone Capital Advisors today to learn more about capital solutions specific to the construction subcontracting industry.
