Subcontractor Report Highlights Cashflow

FRIDAY, JUNE 11, 2021

An industry report released last month from Billd, a financing firm for commercial subcontractors, has found that, while commercial construction contractors have maintained optimism throughout the COVID-19 pandemic, ongoing cashflow problems will likely prevent many from achieving their business growth goals.

The report, titled “2021 National Subcontractor Market Report: Business Growth & Financing,” surveyed 572 general contractors and subcontractors in commercial construction. Billd notes that many of those surveyed are business owners or executives who have been in business for at least 10 years.

The responses surrounded topics that challenge growth, such as lack of access to capital, inconsistent payment cycles and insufficient length of supplier terms.

Nearly three-fourths of contractors said they plan to grow their businesses in 2021, however, the data also found that:

  • 44% believe they'll use cash on hand to finance these goals, but 46% say they struggle with cash flow issues;
  • While about half of contractors say they're generally satisfied with their supplier terms for financing construction materials, 63% have to pay for materials before getting paid for their work;
  • Less than 4% have supplier terms longer than 60 days, while it generally takes between 60-90 days for contractors to get paid;
  • Most reported feeling satisfied with their credit options, but 30% of contractors find it challenging to obtain new sources of financing; and
  • 39% expect access to capital to have a significant impact on their businesses in 2021.

Many of the problems seem to step from the way financial institutions regard the industry, according to the report.

"Subcontractors have an incredible entrepreneurial spirit," says Chris Doyle, CEO of Billd. "Unfortunately, traditional banks and lending institutions are hesitant to do business with construction companies due to their perceived risk, which means subcontractors are often undercapitalized and left trying to finance growth with limited free cash flow."

Some other related key takeaways include:

  • 28% of surveyed contractors said they helped finance their operations with lines of credit;
  • 44% used cash on hand;
  • 8% used credit cards;
  • while 7% used invoice factoring;
  • 65% reported that their suppliers are flexible with their terms;
  • while 18% reported they were denied a purchase because of an insufficient credit limit.

In addition, about approximately 70% (74% and 64%, respectively) of respondents said they were concerned about skilled labor shortages as well as new regulations.

Other Reports

The Billd survey complements other data sets that were released earlier this year, including the first-quarter report from the U.S. Chamber of Commerce Commercial Construction Index has been released, and the data reveals that contractors are growing more optimistic about their outlooks, reportedly driven by a rise in revenue expectations.

Outlooks on hiring and equipment spending plans have also improved while COVID-19 concerns recede.

In general, 36% of contractors expect their revenue to increase over the next year; this is an 11% jump from just last quarter, Q4 2020. Other notable data points include:

  • 87% expect their revenue to either stay the same or increase;
  • 86% of contractors also report a moderate to high level of confidence that the U.S. market will provide enough new business in the next year;
  • while 24% report a high level of that confidence.

In terms of hiring:

  • 46% of contractors say they will employ more people in the next six months;
  • 46% also expect to keep the same number of workers; and
  • just 3% expect to reduce their staffing.

As states, the data confirms that concerns around skilled workers and raw materials prices remain. Some of those numbers include:

  • 85% of contractors report moderate to high levels of difficulty finding skilled workers;
  • with 45% reporting a high level of difficulty;
  • 88% report a moderate to high degree of concern about their workers having adequate skill levels;
  • with 46% reporting a high degree of concern; and
  • 94% contractors who reported a moderate to high degree of concern expect the problem with workers having adequate skill levels will stay the same or get worse in the next six months.

In terms of materials costs and spending:

  • 71% of contractors say they face at least one material shortage;
  • 22% of those are experiencing a shortage of wood/lumber;
  • 82% of contractors say cost fluctuations have a moderate to high impact on their business;
  • while 43% said wood/ lumber is the product of most concern (followed by steel, 35%, and copper, 27%;
  • 35% contractors say steel and aluminum tariffs will have a high to very high degree of impact on their business in the next three years;
  • 37% of contractors plan to increase spending on tools and equipment; and
  • 80% of contractors are still experiencing delays due to COVID-19, with an average share of 23% of their projects delayed, but that share is expected to drop to 15% looking ahead six months.

Lastly, 58% of contractors say worker health and safety remains the top concern for their business, followed by project delays and shutdowns (50%), fewer projects in general (35%) and building product availability as a whole (33%).

While numbers throughout the pandemic have favored commercial and residential construction, the Associated General Contractors of America released data at the beginning of the year in its “2021 Construction Hiring and Business Outlook Report,” which was based on survey results from more than 1,300 firms from all 50 states and the District of Columbia, found that the majority of contractors expect demand for many types of construction to shrink in 2021.

“The percentage of respondents who expect a market segment to contract exceeds the percentage who expect it to expand—known as the net reading—in 13 of the 16 categories of projects included in the survey,” the association said. “Contractors are most pessimistic about the market for retail construction, which has a net reading of -64%. They are similarly concerned about the markets for lodging and private office construction, which both have a net reading of - 58%.”

Some other net readings include:

  • -40% - higher education construction;
  • -38% - public building construction;
  • -27% - K-12 school construction;
  • +4% - warehouse construction; and
  • +11% - medical construction.

While the details of the different subsects of commercial projects remains murky, the National Home Builders Association recently dubbed the residential (more specifically home remodeling) market “more than fully recovered” from the pandemic.

More specifically, over the next two years the NAHB predicts that remodeling spending for owner-occupied, single-family homes will increase 4% this year and another 2% next year.

Other professionals again have noted that demand and backlog remain high, and the biggest factors that are prohibiting the sector to grow more are materials prices and labor shortages.


Tagged categories: Commercial contractors; Economy; Good Technical Practice; Jobs; Market; Market data; NA; North America; Subcontractors

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