To finance slow payments, the estimated overhead included in subcontractors’ bids is 2.75% and 5.81% for general contractors. This year’s report uncovered that slow payments to subcontractors and general contractors will create $136B in additional costs for the US Construction Industry in 2021.
The Excel Paradox
Recently Rabbet released its 2021 State of Construction Finance Report which dives deep into how processes and perceptions of construction finance have changed as well as what these processes could look like in the future. Rabbet surveyed over 45 qualified professionals across lending and development with active construction portfolios ranging from less than $20 million to more than $1 billion.
This is Rabbet’s 3rd time releasing this industry report and there has been one trend in particular that still holds true – most lenders and developers are using spreadsheets to carry out major parts of their process, but complain about its inefficiency.
The 2019 State of Construction Finance Survey found that only 48% of construction finance data was in a system, leaving the remaining half (52%) trapped in spreadsheets. Three years later, spreadsheets are still a significant part of this process as the reliance on spreadsheets grew from 50% to 70%.
When asked, lenders noted that internal communication was the area most impacted by the pandemic, but that external communication, along with reporting and analyzing data across projects, are still their biggest challenges. This suggests that communication channels, in general, are an overarching challenge for lenders throughout the entirety of their processes.
Which leads to the standard spreadsheet. For the second year in a row, Excel is the most widely used program for both lenders and developers; however, it was universally the least favorite program or tool for both groups. Spreadsheets, simply, are an application utilized for organization, analysis, and storage of data in an essentially infinite page of tiny little boxes. They work, but they require so much manual entry and leave room for error at almost every entry. Then, lenders and developers shuttle different versions of the same document after myriad edits back and forth. This can complicate communication further.
Based on Rabbet’s 2021 State of Construction Finance Report, 36% of respondents claim that “too much” of their process relies on excel. Despite this dependence, the majority of respondents also required multiple systems to manage the construction finance process. For many, this included additional tech that had to be built in house to likely compensate for the capabilities excel lacks.
So why are companies so reliant on this program when it contributes to the very problems they claim are their biggest challenges? Well the pandemic certainly hasn’t helped this problem. In fact, the pandemic has likely perpetuated this problem to some degree because the industry was forced to adapt to remote work quickly and this was often solved with the introduction of additional software and processes. As more systems are introduced to the process, the risk of losing efficiency increases. This risk leaves more room for error and ultimately increases the complexity of all components of the process. The combination of multiple systems and people still working remotely can present a significant operational hurdle for both lender and developer teams.
Until now, there haven’t been many effective solutions to these problems. Rabbet aims to change that. After understanding this spreadsheet conundrum for many years, Rabbet was created to help both lenders and developers communicate project statuses and data back and forth via a process that is automated and updated in real-time. All of these facilitate the construction finance process by optimizing communication channels and mitigating error and risk.
To learn more about Rabbet’s solution to the excel paradox or about the 2021 State of Construction Finance Report, reach out! A team member love to chat about how Rabbet can help you and your team increase your efficiency!
If you don’t feel like deep diving into the full report, you may enjoy watching the webinar our CEO, Will Mitchell conducted with Amias Gerety, Partner at QED Investors and Nick Durham, Senior Associate at Shadow Ventures about the trends and takeaways of the report.