Money Talks: An Exclusive Roundtable on Construction Finance

Capital funds! Business loans! Risk! Labor! Technology! Growth! An exclusive CE roundtable gets to the bottom line on everything you need to know about construction finance at this moment. The good news: People are feeling pretty optimistic about the state of the market.
By Christopher Durso
April 23, 2024

“It’s unique in its accounting methodology, I would say,” Kari Juvera says, describing what differentiates construction financial management from financial management as it’s practiced in other industries.

It’s not just that the accounting involved is “extremely specialized,” although there’s certainly that, with “a lot of pronouncements from FASB where you have to account for things in a certain way,” says Juvera, president of Enterprise Builders in Albuquerque. It’s that construction financial management occurs on multiple levels simultaneously, for the construction company itself along with each of its individual projects, partners and stakeholders.

“Every nut and bolt is costed to a job, and every job stands on its own from a profit-center standpoint,” Juvera says. “The money flows to a lot of different places, and one of our most important things, of course, is keeping our subs updated on our payments.”

Juvera was speaking as part of a roundtable of industry finance professionals that Construction Executive brought together with support from the Construction Financial Management Association. (See “CE Roundtable Participants,” p. 23.) Together, they offered a multifaceted portrait of the construction industry and its relationship with money—with loads of actionable insights on listening to the market, identifying warning signs, optimizing your technology and balancing growth and risk.


How would you characterize the market for construction finance, whether that’s capital funding for projects or business loans for contractors?

PATRICK CEBELEK: As the Fed has dialed up interest rates and the cost of money has become real again, the appetite for speculative lending and the economics of being a developer or trying to drive a development job—they’ve become real. Some of that lending has still occurred, but I think the market for construction lending has tightened a bit in the last year to 18 months.

As it relates to construction companies in the market for business loans, I have not had to work for a company that has to have relied on construction lending to fund their business or fund growth. In this business, at the general-contractor, construction-manager level, you really don’t want to structure your company to have to borrow a bunch of money to make it go. There’s still access to those lines of credit, but the cost is more these days versus what it had been in the past five to 10 years.

KENNETH CHICCOTELLA: It’s lightening up a lot now with some of the things the Fed is doing. So, it’s better now than over the last two years, but probably not as good as it’s going to be in a year. I try to stretch what we have, using every tool to its full potential—just trying to be as effective and efficient and lean as you can possibly be. If there is a growth opportunity and you have to borrow money for a piece of equipment or to invest in a new piece of software, you’re in better shape now than you were. But, again, if you can hold off on that for another year, I think you’ll be in even better shape, and you might even make it through and not even need to by then.

CARYL CORONIS: Especially in the heavy-highway or heavy-civil world, it’s very, very good thanks to the infrastructure bill. We continued to do work during the pandemic because we were considered essential, but there were still stalls in some of those projects. It was a tough time for everybody, but some of those things have cut loose. So, in this particular world, financing is very good.

In terms of growing the business, so long as you’re able to put forth a solid plan that’s backed by things that you know aren’t real risk, we have found that it’s been fairly easy. What I’m seeing is a willingness to finance more on the short term than on the longer term.

KARI JUVERA: It’s tightening for subcontractors, primarily because there is so much work out there and subcontractors are out 60 to 90 days in getting paid, which affects their working capital. They are stretched so thin the credit market is really concerned about subcontractor default. That’s a different story for owner-developers and general contractors where a company with sound working capital and current financials is seeing opportunity, with credit markets having appetites particularly in the industrial and retail sectors.

MICHELLE WALKER: We’re typically a subcontractor, but we work for some contractors that are more like developer-contractors, and what I hear is that funding has become a little more cautious over the last 12 to 18 months—I think just with the general uncertainty in the country and the world. We definitely have seen things not move as quickly. I feel like there’s more due diligence being done before projects kick off, which ultimately I appreciate when the checks then come through.


What are some of the financial issues that construction executives should have on their radar right now?

CC: The main one is inflation. It’s not only affecting our personal lives, but it’s also affecting everything in the business world, such as materials prices. There’s also pressure in terms of labor costs. And then, the availability of labor translates to financial because of the fact that you may have to pay more overtime and you may have to work on your schedule in terms of the availability of labor, in addition to that upward pressure for higher wages.

KC: Getting the most you possibly can out of your investments, be that people, software or cash. Talking about software—a lot of companies will buy an ERP system but only use certain components of it. But there are other things on there that you might need to look into doing because they’ll increase your efficiency. It’s kind of like, you don’t want to buy a Corvette and drive it around at 35 miles an hour with the flashers on, you want to get out there and drive it.

KJ: Construction is so robust right now that what worries me is taking on too much work. You have to be very strict to make sure it fits your wheelhouse, fits your profit margins and overall growth strategy. I’ve seen so many general contractors take on too much work, and they’re actually folding because they can’t sustain it.

PC: First and foremost, people. We have a very tight labor market that was completely destroyed and turned upside-down during the pandemic. And we’d already had a problem for a number of years with regard to the lack of good skilled labor and even on the professional side, with project managers and project engineers. Just understanding what your labor needs are—trying not to look at the trees that are right in front of you, but trying to look at the runway of the jobs you have, because we have long-term jobs that can be 12 to 24 months.

The other thing is the construction market as a whole. Right now, the market is still strong, there’s still a bunch of work, and people are flat-out busy. You kind of want to pinch yourself, because some of this is too good to be true, but economic cycles always happen—and they certainly happen in construction. So, trying to look out for, are there stress cracks in this industry? Are the architects and engineers slowing down, and is that going to translate into less work for the contractors? How do you plan for that?

MW: What I’m really watching, especially being in a hot market, is general contractors that are expanding into fields that they’re not as experienced in. Manufacturing is a huge boom here right now, so there are contractors that maybe don’t have as much experience or aren’t established here that are jumping in to take advantage. That can breed risk—maybe this is not as stable of a contractor to work with.


Is technology changing how your company does business?

KJ: Absolutely. At our company, we invest very heavily in technology, and it’s changing all the time. I think you really need it in order to stay relevant in the market and be competitive. We moved everything to the cloud, and we employ a lot of payment solutions that are automated. Everything goes out via ACH [automatic clearing house] electronically, there’s an approval process, and it’s really helped us reduce staff redundancy and allowed our staff to be successful in other data-driven capabilities. We also employ other project-management solutions to keep our hands on the pulse of every job.

PC: Real-time information is key. The ability to get labor hours and costs in real time into your accounting system, to understand where you are at a moment’s notice, look at what your costs are on a job and how that impacts your estimate and your projected profit—I think that piece of technology has really evolved and gotten stronger and been more a part of what a lot of contractors are doing every single day.

In addition, the collaboration with project-management software that allows trade partners to communicate to upstream general contractors and construction managers, and then allows construction managers to communicate downstream to trade partners and out to the bid community has been a game changer in a lot of ways. That real-time exchange is fantastic.

MW: What I’m seeing is the enhancements to the technology. So, we have robust, safe, smart accounting software that has ERP capabilities—but then recently we added equipment-management software. Having the more current live utilization of the equipment for allocating those costs across jobs has been a huge change. It’s using the enhanced technology available in the industry to help across the board, from project management to accounting as well.

CC: The biggest transformation that we’ve seen within the past few years has been the availability for the project managers and people out in the field to have real-time visibility into their projects. That’s a phase that now most companies have, unless you’re maybe a really small company.
Something else that we’ve seen happening is the accounts-payable system becoming more and more automated. I remember a long time ago when we tried to do OCR [optical character recognition] and it would try to recognize things and you’d end up with so much garbage, you’d just say, “Never mind, I’m going back to the old way.” But now the technology is there to where it can really predict a lot of the fields and self-populate them, and then it trains itself. It just gets easier and easier as it deals with those particular supplier invoices, and that is a transformation as well.

The other area where technology is really taking off involves AI. You’re seeing that more and more in everything. One of the ways that it’s being applied right now is in contract review. There are some good AI programs out there that can search through a contract and point out things that you may want to look at. I think that’s really good as well.


How should a company that’s too small—or thinks it’s too small—for an in-house financial team handle its financial-management needs?

KC: If the company is not big enough yet to justify an accounting department or especially a CFO, outsourcing is definitely the way to go. Even if it’s a part-time, temporary or fractional CFO to manage those controls and maybe even help build the infrastructure for when they do hit that time when they actually need to hire someone, so that person doesn’t come in cold and have to do everything.

MW: There are so many ways to approach it. I think the owner doing the finances is a kind of a trap because, in my experience, they’re pretty entrepreneurial people, and that doesn’t necessarily lend itself to the same skillset interests of accounting people.

Whoever takes on that role, it doesn’t have to be a full-time role. Part of what I like about working at a smaller company is, I’m not doing accounting eight hours a day. I’m involved in risk management, I’m involved in safety, I’m involved in HR. I get to do a lot of different things, but I got the education and the training in finance first—so, not just saying, “Oh, that sounds fun,” and just guessing at it. There’s the importance of formal education to go along with somebody willing to take that on along with other responsibilities.

CC: One thing that I am seeing becoming more and more popular is the idea of a fractional CFO. By doing that, with that person not working full-time in the company, they can really be of assistance, especially for smaller companies. Of course, it’s still important to have good, solid financial people within the company who more or less rely on the fractional CFO for support or strategic guidance.

PC: From my perspective, you’ve got to have some person on your team that has that level of understanding that can help you make those financial decisions—somebody in-house. Typically, the business owner is an operationally focused person who may or may not still be working or managing jobs in the field. You need a qualified financial professional—and, when I say that, it doesn’t have to be a chief financial officer, it could be a controller or accountant. The title isn’t as important as the skillset and the understanding that they should have in order to help the business owner make good financial decisions on construction projects.

KJ: What I see is that a lot of the smaller contractors have a bookkeeper, and they’re fantastic. But, in my opinion, the owners need to promote their further education in construction in order to know about all of the solutions that are out there, and/or promote getting a partner company or a mentor in construction to bring them up to speed with all the technologies.

What I see typically in a small company is the bookkeeper calling themselves a controller, and that’s fine. I don’t think you have to be a CPA to be a successful controller or CFO. You just need to have the construction experience and have competence. But I would certainly suggest a small to medium subcontractor or general contractor make sure that their staff is, I’m going to use the word “sophisticated.” Just make sure they’re not day in and day out just doing data entry, but really leveraging strategy and technology in order to improve the working-capital situation.


How can or should a company plan for growth while also protecting itself from financial risk?

MW: Who you work for is a big deal, and that’s an ongoing conversation between myself and the team that goes out and gets the work—just being open to the fact that not every job is a good job. We recently did a job for a new contractor, and our field foreman came in and said, “Hey, you need to know that company’s crews are saying that they haven’t gotten a paycheck in three weeks and they’re all going to walk off the job.” That instantly put up red flags to me, and I needed to ensure my ability to get paid.

Obviously, no growth is going to happen if nobody takes any risks, but you have to look at your numbers and know: How much risk can you afford to take and what can you safely invest without it being detrimental to the future of the company?

PC: A lot of contractors are driven by, “I’ve got to get bigger. I want to go from 1 million to 5 million, 5 million to 15 million, 15 million to 50 million.” Growth for the sake of growth. That’s a huge mistake. Growth for the sake of growth is a recipe for failure and disaster.

You have to have a strategy of, why do we want to grow? What is the driver for the growth? We want to expand our market share. And, in this particular area, how are we going to do that? What does the competition look like? What is the strategy for profitable growth? Because you can get stupid-low on your margins and bid work and grow your company, but then if you have one mistake, you can be upside-down and out of business in short order.

CC: A lot depends on the particular strategy of the company. If you’re talking about wanting to have slow and steady growth, that’s probably the one that comes with the least risk. If you’re going to really minimize the risk, you’re going to stay within those areas that you know you can do well, that are your sweet spot. If you’re going to make the leap and do something new, just make sure that you have all your bases covered, that you’ve done the research about, say, a particular geographic area or another type of work.

KC: If you’re just sitting there, changing when the wind blows or the next shiny object comes your way, you’re probably setting yourself up to struggle with your growth. Have a plan. Visit your plan often. You might need to change your plan; that’s okay, because things do change. But plan, measure, review, repeat.


Are you optimistic about the financial and economic future of the construction industry?

PC: I’m optimistic for a couple reasons. I’ve got strong backlog right now, I’m financially structured so that I don’t have a lot of debt, and I’ve got a great team of people in leadership and in the field. Those three things are allowing us to pursue the right type of work. As I see the horizon, I still see a lot of work coming. I still see a lot of investment in construction.

I often say, listen to the voices. Listen to the things you hear from others in the industry. Listen to the voices inside the company and outside the company. You can’t know everything about a job, about the economics, about the area you’re in. Listen to others that might have a different perspective, and learn from that, so you’re seeing as far out as you can see. That will help you make better business decisions.

KC: I’m definitely optimistic. As they say here in the South, we’re fixin’ to get busy. The infrastructure act that President Biden signed two years ago—it looks like those projects are starting to come online now. People were holding back on projects because of the high interest rates, so developers weren’t borrowing money. But project costs look like they’re coming down. I think that this next year, 2024 into 2025, is going to start to see some good times for construction companies and some good growth opportunities.

CC: In the heavy-civil world, I’m feeling very optimistic. You have to have your finger on the pulse of what’s going on in your area. Whether it’s office buildings or multifamily or residential or commercial, you just have to know what’s going on in your particular sector. And Houston is robust.

KJ: I’m very optimistic. There’s so much governmental money for repairing aging infrastructure and so much in commercial starts. Two years ago, we thought there’d be this huge downturn; however, we’re just not seeing it.

MW: I’m very optimistic about construction. Obviously, the need is there, the demand is there, and I think that we’re starting to kind of have our renaissance as an industry that people want to be a part of. The workforce issues, they’re not gone by any means, but people are starting to pay attention to the fact this is a great place to be.

by Christopher Durso

Chris leads Construction Executive’s day-to-day operations—overseeing all print and digital content, design and production efforts, and working with the editorial team to tell the many stories of America’s builders and contractors. An experienced association magazine editor, writer and publications strategist, he is a graduate of Saint Joseph’s University and lives in Arlington, Virginia.

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