Automate the Entire Construction Loan Process
By Matt Johnner, Construction Executive
In today’s digital world, instant gratification is not only desired, but expected. People expect to click a button and be able to pay bills online, schedule an appointment and receive texts to refill a prescription. Our patience has declined, and with it has come a pressing need for automation in all aspects of our lives.
One sector that has been slow to catch on to the automation obsession is the construction industry, particularly construction lending. For too long, builders and contractors were using computer spreadsheets, creating draw sheets by hand and emailing confidential documents to inspectors. Needless to say, this needed to change and the industry is finally using technology that automates these processes.
AUTOMATING CONSTRUCTION LENDING
Commercial developers, general contractors and residential home builders have started working with lenders who use innovative technology to automate the post-closing administration of construction loans. Accessible from any phone, tablet or computer, this technology eliminates the need for paper files and spreadsheets, lets the developer check on the status from any device and improves the experience for the developer, lender and borrower. People are making better business decisions enabled by real-time text messages showing draw availability and areas of risk.
The best solutions reduce loan administration time by 50 percent or more, lower inspection costs, identify and mitigate potential risks and enhance working relationships through mobile access.
This part of the construction industry has come a long way, but what about the other side of the construction loan process? While lenders and developers are being offered innovative technology to help automate their business, contractors are still working in the dark ages.
For instance, builders continue to pay their subcontractors via paper checks, after collecting paper invoices and paper lien waivers. The subcontractor must then drive to pick up the check, deposit it and wait days for funds availability. In addition, builders are completing 1099 tax forms and other reporting material by hand, which can be difficult and time-consuming.
For these reasons, construction developers, builders and contractors must partner with lenders who are not only using technology to automate the post-close administration of loans, but those who understand that the entire payment process must be automated to be most effective.
Desirable lenders are typically community banks that have implemented new technology to complement the automation tools they are currently using. The new solution is ideally a mobile and web-based service that automates the construction payment stream with electronic submittal of lien waivers and invoices from subcontractors to the builder. This is coupled with electronic payments using same-day ACH that replace checks, much like online bill pay that has made our personal lives easier.
In short, payments are made faster and more reliably. Builders are able to pay their subcontractors instantly, enabling them to focus on building and saving the subcontractors significant amounts of time and frustration. With a more efficient payment process, everyone can concentrate on what they have been hired to do.
Implementing this technology also increases transparency in the payment stream process and reduces unnecessary friction between builders and subcontractors. With mobile access, it is easy to log into the system while on the construction site to check for any errors and assess the status of projects. Subcontractors have all of their payment questions answered by checking their phone, which eases the burden of manual interactions with the builder.
Also, it is safe to say that the best contractors look to work with the best developers, and the best developers try to seek out the best lenders.
Using technology to automate the post-close administration of construction loans is important, but now is the time to take automation a step further. By working with lenders who are also using an automated payment stream tool, construction professionals can speed cycle times and payments, improve communication and focus on their important work at hand.