The Texas-based fintech Billd’s new payment solution targeting sub-contractors and their suppliers has the potential to change the way the US construction industry’s supply chains are financed, CEO of the company Chris Doyle told SCF Briefing.
The financial technology start-up – which was founded in 2018 – announced at the end of January that it closed a $60 million series A funding in debt and equity to support its growth ambitions in the sector. The funding was led by Philadelphia-based investment firm LL Funds.
Doyle explained to SCF Briefing that too often smaller sub-contractors in the construction industry are unable to take on as many projects as they want to due to bottlenecks in the financing of the supply chain between material suppliers, sub-contractors and contractors.
“Most suppliers are providing 30-day or sometimes 60-day terms, yet even if it is 60-day terms, that does not necessarily cover the gap between when the sub-contractor has to purchase the material and when they get paid for their work. Suppliers are in tough position where they can end up effectively competing on credit terms,” he explained.
This means smaller sub-contractors are often in a position where they can’t accept new building projects until they’ve received payment for earlier projects and settled their bills with suppliers. The suppliers are often forced to extend and make their payment terms more attractive to keep their clients’ business.
“[It is] limiting growth and it also limiting competition,” said Doyle.
“The sub-contractor wants to compete with larger companies, grow and take on extra projects. This solution enables those that can perform the project can take on more, and not just those that can afford the capital spend to get the next project,” he argued.
Billd’s new financial software acts as a layer between the supplier and the sub-contractor, whereby the fintech pays the supplier upfront, while the sub-contractor has up to 120 days to pay Billd for the materials.
“It is [the product] of tremendous benefit to the supplier. Suppliers are competing on selling their performance, how reliable they are, their pricing and are always looking for ways to differentiate themselves. The problem is they are not lenders and shouldn’t be put in a position where they are differentiating themselves on their credit risk,” he said.
To protect Billd from potential losses, the fintech has structured the product so that together with the sub-contractor, they have statutory lien rights over the project property and could potentially recover losses from the property owner – in the case of the main contractor going bankrupt, for example.
Billd is far from the only US company harnessing financial technology and non-traditional lender underwriting techniques to finance small and medium sized companies.
Other fintechs active in the US market such as Kabbage and OnDeck are competing in a similar arena, offering loans and advance payment solutions to small and medium-sized businesses.
Doyle emphasised how Billd’s sole focus on construction ensures it stands out from the competition.
“We are focused on construction industry 100 percent – that’s our biggest differentiator,” he said.
“Our team has construction experience, whether it is working with the supplier or the sub-contractor. I framed houses for two years when I was at high school and having that hands-on experience is extremely important to me. As we build out the team, if you don’t have that experience, we’ll probably send you out to get it,” he said.
Billd will remain focused supply chain financing for sub-contractors for the near future, Doyle added, before it considers opportunities elsewhere in the construction sector.
He said the next step for the company is to generate a track record of repeat business with sub-contractors, where loans are originated and paid off to build up a performance history which will help bring down the overall cost of the solution.
As part of the latest fundraising deal with LL Funds, Shivraj Mundy, partner at the fund, joined Billd as executive chairman. He was previously a MicKinsey consultant and brings with him 17 years of specialty finance experience.