Financing construction materials in the age of infrastructure spending
By Jenny LescohierOctober 05, 2021
Construction contractors stand to benefit if the proposed infrastructure spending bill is approved by Congress in the coming weeks. There’s potentially more work to be awarded, provided companies can be ready with resources in place to take advantage when the time comes.
If you’re like many smaller subcontractors or companies that are just starting out, you might not have deep pockets of cash and walk a bit of a tight rope when procuring materials for upcoming jobs.
If an influx of government contracts presents opportunities for growth, how can you be sure you’re ready to jump on them?
We talked with Chris Doyle, CEO of Billd which is pioneering material financing to allow contractors and subcontractors to bypass project hurdles with access to upfront funds while enabling suppliers to sell more materials with less risk.
CONEXPO-CON/AGG 365: Tell us about Billd and what it can offer contractors?
Chris Doyle: We started Billd two and half years ago, providing payment options for contractors who need to purchase materials for an upcoming project but who won’t get paid for 60 to 90 days. We provide 120-day terms, so it’s like the ‘buy now, pay later’ that you see emerging in e-commerce.
We only handle commercial construction, that is 100% our focus.
CONEXPO-CON/AGG 365: This isn’t a new problem. What’s different?
Doyle: This has been an issue for contractors forever, and there are a lot of folks trying to offer solutions. Almost all of them are top-down companies like Rabbet here in Austin or Built in Nashville. They’re mostly technology platforms, connecting project owner and general contractor, making that process a lot more streamlined.
They can potentially take the payment delay, if it’s an average of 70 days now, down to 60 days or 55 days. That slowly improves the problem, but it’s so far away from what will work for an efficient supply chain finance for contractors. We’re the only company attacking it from the bottom up, directly with the sub and supplier.
CONEXPO-CON/AGG 365: Speaking of supply chains, they’re more challenged than ever. Can you help with that?
Doyle: On one hand we see increased demand from customers who need to secure material and pay for it today before prices goes up. On the other hand, we’re seeing a lack of material availability. It’s 100% been a struggle that has left subcontractors feeling very helpless.
We can help customers buy on their terms. When material is available and contractors just need to buy right now to get the best price, we give them the firepower to be able to do that.
CONEXPO-CON/AGG 365: How does the system work?
Doyle: Let’s say you’re an electrician, and you’re awarded a $300,000 contract on a parking garage… you’ve got copper wire, fixtures, switches, all of your materials, and you plan to be on the project for two or three months.
On a $300,000 contract, about $100,000 of that’s going to be material that you purchase, and then install. And you’ll need, say $30K worth in a month. You go buy that material for $30K, plus $30K of labor, and you submit a $100,000 payout. You’re not going to get paid on that for three months. You do that over and over and over and it just digs this deeper and deeper hole.
Contractors submit their invoice to us, the purchase order, the quote… basically whatever the supplier provides that says this is the materials that are going to get delivered. We pay that directly to the supplier upfront. We do same-day processing.
The supplier then delivers the material and then our customer pays us when they’re paid by the general contractor, or in 120 days, whichever is sooner. It’s a ‘pay-when-paid’ product.
CONEXPO-CON/AGG 365: What’s the interest?
Doyle: It’s simple interest. As long as the balance is outstanding, it’s a daily accrual of interest. If a contractor pays within 30 days, it amounts to almost nothing. We tell our customers, mark up your projects 1.5% and you’ll never have to worry about terms with your suppliers again. You will always have that cashflow flexibility.
It also allows a contractor to negotiate a little bit differently with their suppliers. I’ve spent 20-plus years in construction and I know what it’s like, you have a relationship with a supplier where you have set pricing, but you get a big job and sometimes you need to negotiate. We can put our customers in a position where they can better negotiate, maybe pay up front for a discount.
CONEXPO-CON/AGG 365: Is it tough to get approved?
Doyle: Just go online, it takes probably less than four minutes to apply. You can then immediately put in your first purchase and get funded that same day.
It’s not that we’re super automated, everything is dialed in and here comes your disbursement. We always say we’re a construction company, we know the customer, we understand their pain points.
We know our customer is going to be a little more reactive. We get a call because they get a call from a GC for a job in two weeks. They need to get something paid today. Our team is really built around that quick action.
Honestly, a traditional underwriting model would say no to a lot of our customers because they might have been in business for only a couple of years, and maybe their FICO score isn’t perfect, and they have a low cash balance.
What we focus on is the project, for the most part, any real commercial construction project. As long as you’re a licensed contractor in good standing, we’ll work with you. There are some projects that are a little more difficult for us, not so much because they’re small, but because they’re more speculative, and there’s some question over whether the contractor will actually get paid. If they’re not paid, it’s very difficult for them to pay us.
CONEXPO-CON/AGG 365: How does this compare to traditional financing options?
Doyle: If a contractor has a corporate credit card, even if they’re a $10- to $15-million subcontractor, they’re probably only getting a $50,000 line of credit. So there’s a lot of moving money around. I hate this cliché, but it’s “robbing Peter to pay Paul,” not because these are bad businesspeople, it’s because they have no other way.
And it’s universal, no matter how big or small the contractor is. Payment delay doesn’t discriminate on revenue. When a GC gets paid by the project owner, the payments all go out. Every sub has the problem, not all of them have all the financing options at their disposal.
CONEXPO-CON/AGG 365: With the proposed infrastructure bill up for discussion in Congress, there’s quite a bit of work possibly coming into the market in the near term. Can your tool assist contractors in taking advantage of these opportunities?
Doyle: Our message would center on how you can sustainably scale your business. Where do you want to be in three years, and let us help map that out for you.
It’s important to realize these potential infrastructure projects are not typical bids. There are required qualifications. Contractors need to have that stuff ready and we can help you get there.
We want to make sure our customers are truly ready to support a 2x or 3x growth over whatever number of years. Many of our customers are new business owners and don’t have business degrees. You don’t graduate with an MBA from Stanford and go start an electrical contracting business.
These are entrepreneurs who are starting their own business and who don’t necessarily know what it takes to get from year one to year 10. They know the operation side, but there are many things in between that fall into the gaps.
These growing contractors are in a position where they’ve found a few solutions that allow them to operate under their current volume, but it’s that extra project that comes up that can make things difficult because it double downs on their cash flow problem. Those contractors who are planning or seeing growth are really where we see our sweet spot.
CONEXPO-CON/AGG 365: What sort of contractors do you see in the best position to benefit from increased infrastructure funding?
Doyle: Minority-owned business participation is generally stipulated to have 5% to 10% participation in government projects. If you want to start a business as a minority business owner, now is the time.
Get ready, because you have time now to get some projects under your belt and prepare for this influx of funding. There will be a huge demand to meet those minority participation goals, especially if you’re in one of these specialty construction segments.
We can help that small businessperson to grow without some of the usual hiccups.