Subcontractor’s Guide to Navigating an Increasingly Difficult Environment

The effects of COVID-19 continue to ripple through our already crippled economy, and the construction industry has not been spared. Two years on, supply chains remain broken, affecting the availability and the price of materials critical to projects large and small. Skilled laborers left the industry during the pandemic, worsening an already severe shortage, and increased consumer and business construction demand has pushed most subcontractors’ bottom lines to the breaking point.

To get a more macro view of the growing challenges impacting the industry, Billd’s National Subcontractor Market Report provides an in-depth review of industry trends impacting the construction industry and how they affect subcontractors’ ability to navigate an increasingly difficult environment.

Top 3 Hurdles

The 2022 National Subcontractor Market Report asked respondents: What do you believe will be the most significant risk to your business in 2022?

• Issue #1 - listed by 40% of respondents is the availability of skilled laborers.
• Issue #2 - listed by 30% of respondents, is material price and volatility posed a significant risk to the business.
• Issue #3 - listed by 16% of respondents, is material lead time delays.

These three issues can be directly linked by one common thread -- access to financial capital. Two out of the Top 3 challenges facing subcontractors are related to materials and their costs, with the No. 1 issue being the availability of skilled workers to complete projects, in which cost will also play a crucial role.



Subcontractors Utilizing 21^st Century Solutions

While subcontractors are satisfied with their credit options and financing options, they do feel the pressure of paying for substantial material and labor costs upfront, making managing cash flow difficult.

According to the data, 59% of contractors intend to rely on cash to fund business growth in 2022. However, half stated cash flow remains a major challenge for most subcontractors.

This year’s report shines a light on a core construction industry fault – a broken payment cycle that continuously places subcontractors into a difficult cash flow position compared to their counterparts. Subcontractors are often the last to receive payment for their completed work which impacts their ability to bid on potential projects. In this current volatile market, cash on hand does not offer reliability and security to pay for materials and labor upfront, much less provide the ability to finance a business’s sizeable expenses when it comes time to scale operations.

However, things may begin to change for the better, thanks to financing solutions specifically created for subcontractors. These new financing solutions come in the form of low interest loans with 90-day terms, instead of the 30-day industry standard. These longer terms still allow suppliers to be paid upfront, while also providing flexibility to manage other needed purchases and help lock in the best prices with the negotiating leverage of a cash buyer.

When it comes time for labor costs, new, reliable advance financing tools have begun to infiltrate the marketplace. These new pay advance options will help subcontractors address rising labor costs in the construction industry, and the severe impact it has on cash flow and overall liquidity of commercial construction projects. They stabilize cash flow and allow subcontractors to continue to grow their business.

Halfway through 2022, we have a have already seen how rising material prices, continued supply disruptions and the labor shortage have impacted subcontractors. For subcontractors to have a chance to be successful, they will need more tools in their financial arsenal belt to help them negotiate the complex, painfully broken payment cycle. Subcontractors are left to support the $1.4 trillion industry while they are left with limited cash flow solutions. For subcontractors to succeed and thrive through the next market cycles, they will need to be supported by financiers specifically created for them and who provide sufficient credit limits needed to do the best work of their lives.