Differentiate Yourself Within Competitive Construction Lending

Construction lending is a growing sector of the mortgage industry, and one that has traditionally been dominated by big banks. Recently however, these big banks are taking a more conservative approach on construction loans, creating opportunities for smaller, community-focused banks to seize the steady flow of capital.

While big banks are choosing to limit exposure by focusing more on existing customers, other financial institutions can jump in to fill the void. Of course, this means that the competition between small and mid-level banks focused on construction lending is reaching an all-time high.

So, how can a financial institution differentiate itself in such a competitive market? The answer is by offering solutions that automate the entire construction loan process, making life easier for all parties involved.

The first part of the construction lending process that must be automated is the post-close administration of construction loans. Innovative lenders are now offering technology that is accessible from any phone, tablet or computer, eliminating the need for paper files and spreadsheets. This allows the borrower to check on the status from any device and improves the experience for everyone. People are making better business decisions enabled by real-time text messages showing draw availability and areas of risk.

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Ideally, the best solutions for this process reduce loan administration time by 50 percent or more, lower inspection costs, identify and mitigate potential risks and enhance working relationships through mobile access. But what about the other side of the construction loan process? While lenders and borrowers are being offered innovative technology to help automate their business, contractors are often left behind.

For instance, the majority of builders and general contractors are still paying their contractors via paper checks, after collecting paper invoices and paper lien waivers. The contractor must then drive to pick up the check, deposit it and wait for funds availability. In addition, builders and general contractors are completing 1099 tax forms and other important reporting material by hand, which can be difficult and time-consuming.

To truly remain competitive in the construction lending market, lenders must not only use technology to automate the post-close administration of loans, but also understand that the entire payment process must be automated in order to be most effective.

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Competitive lenders are typically the community-focused banks that have implemented new technology to complement the automation tools they are already using. This new solution looks like a mobile and web-based service that automates the construction payment stream with electronic submittal of lien waivers and invoices from contractors to the builder, as well as electronic payments to replace checks.

In short, borrowers are able to pay their contractors instantly, allowing them to focus on the project at hand and saving the contractors significant amounts of time and frustration. Borrowers are always going to choose to work with lenders with a more efficient payment process so that they can concentrate solely on ensuring the job is completed properly.

Technology such as this also increases transparency in the payment stream process and reduces unnecessary friction between borrowers, builders and contractors. With mobile access, it is easy to log into the system on-the-go to check for any errors and assess the status of the project. Contractors have all of their payment questions answered simply by checking their phone.

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While this kind of automation is new to the industry, two forward-thinking lenders have already adopted it and have collectively processed over 126 million in construction payments in just four months. As a lender in the construction loan industry, it is critical to automate both the post-close administration of construction loans as well as the payment stream. This ensures the lender faster cycle times and payments, improved communication and of course, a competitive advantage.

About The Author

Matt Johnner

Matt Johnner is president and co-founder of BankLabs, a national provider of community-oriented technologies that reimagine banking to generate new fee income, attract deposits, expand loan opportunities and differentiate the financial institution from competitors. BankLabs believes that community banking is a way of doing business, not a size or location. For more information, visit www.banklabs.com.