The banking industry has an unusual problem that affects PHCC members every day. The banks have been flooded with cash as investors have fled the stock market—that sounds good, but it’s not. The banks have tightened lending requirements which has reduced its pool of eligible borrowers. The result is a lot of money with nowhere to go. Low interest rates have reduced payback to banks on the places they normally park money, yet bank expenses have not gone down. The normal business rules apply: reduced revenue means costs must be reduced forcing closures and layoffs. Many banks have actively worked to discourage large deposits of cash from customers that do not have other revenue-producing accounts.
The impact to the construction industry is obvious: lack of financing has dramatically stifled this sector of work. Financing issues have put some needed projects on hold, or worse, stopped projects that were underway, leaving contractors with unpaid outstanding receivables. There is legal recourse in these situations, but unfunded incomplete projects seldom have significant market value or equity.
Opening up lending is a risky venture that the banks have shied away from, yet increasing their participation would put people back to work and provide the banks a greater rate of return. With signs that the economy had moderate improvement in the third quarter, let’s hope that the “somewhere” this available cash can go is into some much-needed construction projects and small businesses. This will not only benefit the construction industry, but the country as well.
Here are some tips to make your business more appealing to lenders.