Is Fintech Cornering Construction Finance?

Fintech in Australia has swept the country like a revolution, and it continues to see substantial innovation in the commercial finance sector.

Nathan Daly
October 30, 2020

Is Fintech Cornering Construction Finance?

Fintech in Australia has swept the country like a revolution, and it continues to see substantial innovation in the commercial finance sector. There are over 800 Fintech companies across Australia’s cities, part of a burgeoning industry expecting to reach a value of $4 billion AUD this coming year. Ideally located close to economic strongholds in Asia, as well as having an ‘early adopter’ attitude, Australia is willing Fintech to flourish.

Acumen is one of these early adopters of state-of-the-art Fintech solutions to facilitate online lending and support your commercial mortgage requirements. If you are considering building from scratch, Fintech developments have made the process of construction finance a whole lot smoother too.

Construction Loans: High Risk and Regulation

Construction loans, perceived as the most risky in a lender’s portfolio, are therefore subject to much regulation, in an attempt to manage and mitigate the potential risks. The process of construction finance can be a Catch-22 situation – lenders need to see progress on a project to approve further financing, but construction companies need funding to make progress. Excellent coordination between numerous stakeholders is crucial for lenders to mitigate risks, but ordinarily, it is painfully slow due to the exchange of emails, spreadsheets, documents, and phone calls needed to create visibility for the lender.

Typically, construction loans have a crowded supply chain, and this can slow down the flow of money during the construction process. In 2017, the Federation of Master Builders found that two-thirds of SMEs in the construction sector did not receive payment within the standard timeframe, and almost one quarter waited over four months for payment. Some Fintechs are focusing on resolving these business-to-business (B2B) issues because if cash flow accelerates at the top of the chain, the money moves faster throughout the whole chain. CEO of Built Technologiesexplains “If we can expedite that flow of funds [to the borrower], it allows the flow to accelerate from the owner to the contractor.” So how can Fintech help both mitigate risk, and improve systems and cash flow?

How is Fintech Improving Construction Finance?

Fintech is viewed in the industry as the redeemer of construction lending, with its capability to significantly reduce risk, increase transparency, eliminate friction, improve the customer experience and drive cost savings.

Mitigating risk in construction lending is a leading factor in introducing technology, and the key is information. The capability of this technology to deliver transparent information, in real-time, is a game-changer. Apart from reducing human error, it enables lenders to avoid overfunding of loans and generally feel more secure about lending as they can keep a closer eye on the project.

The flow of data is another element which makes the integration of blockchain technology such a valuable tool. Analytics provide further aid to risk management, creating a proactive approach so that lenders are aware of projects suddenly coming to a halt or changes in borrower behaviour. Blockchain technology helps keep everyone accountable through the chain so that fewer mistakes occur, communication is unambiguous, and friction reduced.

The administration behind construction loans has inevitably slowed the process in the past and led to increased project costs. Fintech is providing stakeholders with the means to connect more collaboratively and efficiently by automating systems. This development leads to lender cost savings, combats friction and pushes the flow of money along the supply chain – keeping everyone happier. Stakeholders can spend more time designing, creating and constructing.

How does Fintech help the consumer? The borrower experience has historically been somewhat lacking in the process. Technology has eliminated the necessity of making a phone call to the lender to inquire about where their loan stands, which often led to the 'domino effect’ - going from pillar to post chasing up stale information. Fintech creates transparency so that all the stakeholders know what is going on at any given moment. Despite the lack of face to face contact, this enhances the customer experience because they can self-serve from their computer.

A New Wave of Construction?

Is Fintech the future for construction financing? It is undoubtedly making conditions more favourable for lenders – lowering risks, cutting costs and saving valuable time in loan administration. Consumers also undoubtedly prefer borrowing to be a smoother experience. With more and more social awareness around building better, more energy-efficient, environmentally-friendly properties, Fintech could be a way to help businesses realise their vision.

The transparency, trust, security and high-performance promised by Fintech companies and powered by technology like blockchain, create stronger relationships in a previously high-risk sector. If you are thinking of embarking on a construction project, Acumen finance has a specialised range of tailored construction funding solutions, and an experienced team of professionals to walk you through the process. Reach out to us today so that we can find the best solution for your construction finance needs and help you finance the future.