Communication and collaboration are the cornerstones of successful commercial construction

I am fortunate to have spent more than 25 years in banking, focused primarily on commercial lending, here in Northwest Arkansas. Considering how this region has grown, I’ve had the privilege of helping many real estate developers and commercial contractors secure funding for various construction projects.

One thing I’ve learned that I believe is worth sharing in this issue focused on commercial construction is the vital importance of communication and collaboration between developers, contractors and their bankers. While that has always been true, it has become even more critical in the past few years. Let me explain.

Commercial construction projects are complicated, especially now. While supply chain issues have improved since the pandemic, they still exist in certain areas and can create unforeseen delays to a project timeline. Workforce issues have been impacted not just by the pandemic but also by a unique and large-scale corporate campus being built in the region. That can also result in delays, not to mention cost increases to get the work done.

Consistent communication between banks and contractors helps mitigate these risks. Early discussions about project budgets, payment schedules and contingency plans enable both parties to anticipate potential issues. Regular updates and meetings ensure that deviations from the original plan are promptly addressed, allowing for timely adjustments. This proactive approach can prevent minor issues from escalating into significant financial problems, safeguarding the interests of the bank and the contractor.

Another reality in today’s lending environment is that banks, as a whole, are dealing with liquidity issues as deposits have fallen across the industry and interest expenses have risen. The impact for contractors is that some banks might not be interested in making or able to make a loan today that they would have made a few years ago.

This requires developers and contractors to start the process of securing financing earlier. An experienced contractor who has become accustomed to beginning the process of project funding three to six months before the anticipated start date of a project should move that to six to nine months. In my experience, it’s never too early to begin discussions about financing for a project.

The national banking environment is also changing, mainly due to stress in the commercial real estate markets far from Northwest Arkansas. That is impacting what bank auditors expect to see in a loan package. Put simply, there are more i’s to dot and t’s to cross than before. Years ago, contractors might have secured final funding for a project on a Monday and expected to begin site work the next day. Starting any work on a job site before the mortgage is filed can lead to real problems that might delay a project for weeks. Like I said, things have changed.

Overall, I believe the key to successful financing of commercial development and construction loans in today’s environment is to view your bank as a relational part of the project instead of a transactional part. Relationships work best with good, ongoing, transparent communications. They work best when there is collaboration.

Commercial construction comes with inherent challenges. Whether it’s a sudden change in design, unforeseen site conditions, supply chain disruptions or simply the weather, the ability to respond swiftly and effectively is crucial. Consistent communication facilitates efficient problem-solving. When banks and contractors maintain open lines of communication, they can quickly connect to discuss issues, brainstorm solutions and implement necessary changes. This collaborative approach ensures that problems are avoided or resolved efficiently, minimizing delays and cost implications.

Chris Thornton is executive vice president and loan manager for Arvest Bank in Springdale. The opinions expressed are those of the author.