ForConstructionPros.com

Contractors and developers are very concerned about their inability to find or keep financial sources, as well as obtain financing for working capital or equipment purchases. Since this is such an important issue, I thought I would bring in some additional talent to help address what is going on with the construction/financing relationship and why; when we can expect it to ease up; and what steps you need to take to improve your ability to get financing.

The first person I called is Ken Hedlund, the principal in charge of the Construction and A/E Team at Somerset CPAs in Indianapolis, and chairman of the Executive Committee of the BDO Alliance Construction Industry Group, which represents 50 firms covering more than 1,000 construction clients nationally. As a CPA, Hedlund consults with clients on operational issues, including programs to improve banking relationships.

The second person I called is Robert Frentzel, EVP Specialized Industries - Construction and Engineering Division at The PrivateBank in Chicago. Frentzel and a team of former LaSalle Bank colleagues recently joined The PrivateBank to establish a commercial lending banking platform focused on Specialized Industries. The team is specifically focused on architects, engineers, contractors (general, prime and sub) and construction materials suppliers.

Tighter standards equal fewer loans

Before I contacted my two “partners in crime,” I did some research into banking practices, and came across an article outlining a survey conducted by the Office of the Comptroller of the Currency related to bank underwriting practices. The banks participating in the survey represent 83% of the loans in the national banking system.

In 2008, banks tightened underwriting standards for both commercial and retail loans after four years of easing the standards. The findings show 52% tightened standards and 42% left them unchanged. In contrast, only 6%/15% tightened standards and 26%/35% eased standards in 2005/07, respectively.