Innovations in the Construction Finance Ecosystem

 

The construction finance ecosystem includes three core financial services: Insurance, Lending Products, and Payments. These three services have large market size, pain points, and an acute need for innovation. Lending is a lifeline for construction. In the U.S., in the first quarter of 2019, the number of construction loans surpassed $350 billion, a post-crisis high. However, businesses remain constrained by liquidity, and 3.3% of a project's cost is due to finance expenses.

 

The construction payment flow involves the chain of approvals and flow of payments. Each month, builders submit hundreds of pages of documents to their lenders, which approve the monthly draw based on the percentage of completion. Owners then verify that all milestones have been met by comparing them to the pre-established drawings, and then negotiate the actual payment amount with the contractors. This process is mostly done by humans, and it involves paper checks and countless delays. For more details about this service, click on this link.

 

The construction finance ecosystem includes both traditional and non-traditional lenders. Lenders approve monthly draws based on an estimated percentage of completion. This constant negotiation creates risks of labor shortage and liquidity problems, and increases the likelihood of project delays. Additionally, workers are seeking safe working conditions. Contractors are also worried about personal liability claims and worker's compensation claims. Meanwhile, owners worry about construction defects lawsuits that could be costly in the long term.

 

The construction finance ecosystem includes startups that reimagine old processes and automate business processes. These startups' innovations will have a profound impact on the industry and payments. BlueTape, for example, recently announced its buy-now-pay-later solution that allows builders to purchase materials and pay for them over 30, 60, and 90 days. By using this technology, these companies are speeding up the flow of money throughout the entire construction finance ecosystem. Visit this website: getbuilt.com to discover more about this service. 

 

Existing solutions only reshuffle underlying liabilities among different parties, and they do not effectively mitigate multiple risks. For a construction finance ecosystem to flourish, the solution should serve as a Multilateral Risk Management Platform. To be effective, it should be capable of facilitating the transfer of capital across all stages of the project's lifecycle. Creating a product that serves as a 'MRP' is a crucial part of the construction finance ecosystem.

 

The construction payment flow is an important part of the construction finance ecosystem. It focuses on the flow of payments and the chain of approvals. Every month, builders submit hundreds of pages of documents to lenders for approval. Lenders approve payments based on a percentage of completed work. The owners verify the completed milestones with predetermined drawings and negotiate the actual payment amount with the contractors. All of these processes involve humans. Even the simplest of payment systems can't avoid risk.

 

Built is a construction finance ecosystem that connects lenders, borrowers, contractors, and inspectors. It also helps lenders reduce their risk by leveraging technology. By combining these components, it can increase the speed of money throughout the construction industry. This can benefit both parties. Those with built-in connectivity have a better chance of closing construction projects. For the lenders, the Built implementation team ensures the success of their loan portfolios and the success of their clients. You can get more enlightened on this topic by reading here: https://en.wikipedia.org/wiki/Project_finance.