Construction Lending — 4 ways to establish profitable relationships with builders
What is the hottest fire today? This seems to be the most common “management” style with most builders. Questions from City officials, problems on the jobsite, sales needs, change orders, and time frames dominate builders everyday. Has this “management” style frustrated you as a borrower or lender? Do builder problems turn into your problems? Do these problems cost you time and money? Within these problems lies a massive opportunity!
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
Here are 4 ways to build a profitable relationship with a builder
I was once a builder and I am keenly aware of the problems that creep up between builder and lender. The most painful part of my work with the lender was the payment/draw process. It felt like I was always rushing a draw request to my lender needing the money urgently for myself or a subcontractor. It wasn’t until later in my career that a lender invited me to lunch to talk through some of the issues I was having. That lender took a genuine interest in my business and wanted to solve the problems I was having. In that lunch meeting we were able to speak candidly and the lender showed me how my process was causing problems for them. The lender gave me some feedback and together we created a sustainable system that worked for both of us.
This completely changed the game for me. Instead of bouncing from lender to lender, I stuck with my new “partner lender.” I worked almost exclusively with them for seven years and sent them tens of millions of dollars worth of loans. That lender solved just a few of my problems and it led to a great relationship.
Target builders you want to work with and fill their need better than their current lender. Be creative, but know that the key to a builders heart is simplicity. Make their life easy and you will reap the rewards
2- Make sure your process is efficient
After creating a new system with my lender I started to quantify how much time we were spending on draw requests. What I found was astonishing! My full time accountant, Mindy, that I was paying $6,000 per month was spending 75% of her time preparing, fixing, communicating, and completing draw requests! This process was costing me $4500 per month! Not only was it costly but Mindy had other responsibilities that were getting pushed off. With my new “partner lender” we created a new system for making payments and I was able to let Mindy focus on tasks that were more important to business growth. Also, the relationship with my lender grew to the point that I didn’t check rates, or fees over the next 7 years and automatically sent my loans to them.
After building this new system with our lender it is interesting to note that their process time went way down. They reported back and let me know that their team had a massive increase in efficiency.
3- Be Fast! Not just 48 hour fast, but fast
The national average for subcontractor’s invoice aging is 43 days. Yes, we know you are not the problem there, however when a builder sends a draw request, most likely they want the money now! How can you improve your checks and balances to make sure you are validating compliance docs, and checks to meet regulation standards while fulfilling your contractors needs? One hint. Spreadsheets are too slow and prone to risk. Validating invoice data vs. budget and completing inspections is a labor intensive task. Helping your employee’s be efficient and processing same day payments will keep your builder happy and your financial institution profitable
4- Adopt technology
Stay ahead of your competitors by modernizing the way you do construction. Use software that automates the draw process and interfaces with your client to create higher profitability and repeat business. Here at eDraw, we help lenders increase profitability and growth by building internal efficiencies and improving client relationships. With CoFi, you will be able to safely manage construction loans, build relationships that will grow your construction lending business, and add efficiency to your team.