As if the looming recession hasn’t caused enough market uncertainty, the bank failures in March 2023 have prompted additional concern, particularly for general contractors. Both impacted banks — Signature Bank and Silicon Valley Bank — had their hands in construction loans and affordable housing investments.
While Signature was the third-largest lender of apartment loans in NYC, SVB invested over $2 billion in affordable housing. This situation has left all in the construction industry wondering if the fallout may hit their business.
Will Contractors Be Affected?
Since the closure of these banks, construction executives have wondered whether the industry will be affected by the failures. As of yet, there has been no direct impact on contractors or their projects. However, contractors are bracing themselves for anticipated tightening from small and regional banks.
What exactly does “tightening” mean? Banks will reduce their credit lines and make it more difficult for contractors to close loans. Eddie Lorin, Alliant Strategic Development founder and CEO, is facing this issue as he aims to build 10,000 affordable housing units in Las Vegas. A lender he sought to work with told him there was no way they could fund a $100 million construction loan this year “after what just happened.”
Additionally, with this, commercial real estate and construction may weaken in the year ahead. For now, nonresidential construction activity has stayed consistent, but construction and borrowing costs as well as interest rates also remain high. These factors could impact consumers’ decisions to move forward with construction projects in the near future, impacting contractors.
How to Protect Your Interests
If you’re worried about protecting your interests during this uncertain and volatile economic period, here are some steps you can take to be more in control financially.
- Build up cash reserves
- Maintain a certain level of liquidity
- Create diversity in your investments
All these steps ensure that you can react quickly should you need to. In general, banks (especially smaller banks) are less likely to have capital available. So, you’ll need to compensate for this if you often work with smaller banks for your construction loans. These banks are also under a lot of scrutiny after the collapse of SVB and Signature. They may pull away from the market to reduce their risk and exposure.
Final Thoughts
For the time being, don’t panic. Regulators have acted quickly to limit the damage of these bank failures. However, you can put your company in a good spot by reviewing your finances and understanding how to stay in control. If you protect your interests by taking the steps above, you’re controlling everything within your control in an uncertain market.
If you need help getting your finances in order, consider inBuild. By integrating inBuild into your business, you’ll save hours and avoid mistakes that could cost you money and exposure you to risk long-term.
