Episode 155 | The Banking Strategy Smart Contractors Use to Scale Faster

In this episode of The Mobilization Mindset, Scott Peper and Drew Aldridge break down how banks and project-based funding work together to help contractors grow. They explain why traditional bank lines of credit are designed for one purpose, why growing contractors often outpace those facilities, and how the right financing strategy can bridge the gap without replacing an existing banking relationship.

They discuss:

• Why most growing contractors eventually outgrow their bank line of credit
 • How project-based funding complements—not competes with—traditional banking
 • Why financing work in progress is different from financing accounts receivable
 • How the right capital strategy supports sustainable growth
 • Why banks and specialized lenders can create stronger outcomes together

If you're wondering how to finance larger projects without overextending your business, this episode offers a practical framework for building a smarter capital strategy.

Learn more: https://mobilizationfunding.com/

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Transcript

SPEAKER_01 0:00

If you get a loan that's even the lowest cost but out of alignment to structure, it will become the most costly loan you ever create because you won't have access to it and it can only create problems. Welcome everybody to the next episode of the mobilization mindset. My name is Scott Pieper, CEO and founder of mobilization funding. And today we're going to be talking about how we work alongside banks, why banks are sometimes tough to work with or around, or when you should actually be working with your bank in a nice positive manner to help fund your construction company. You can do all of them. You really can. And today we're going to talk to you about exactly how to do that. Drew, welcome.

SPEAKER_00 0:45

Glad to be here. Spent a few years in banking.

SPEAKER_01 0:48

Yes, you did. So, folks, if you're listening on an audio platform and you want to hear a C Drew, you can see or find any of these videos at mobilizationfunding.com or our YouTube channel at mobilization funding as well. All right, Drew, tell us about banking. How do we work with banks? People a lot of times people think that we can't work with a bank, or if they have they want to work with a bank, they're like, why would I need you and a bank? What's still that conversation?

SPEAKER_00 1:12

Yeah, first off, myth. We, you know, banks can't work with us. That's mythbuster. We absolutely can work with a bank. Let me first.

SPEAKER_01 1:18

Most of our clients have bank lines.

SPEAKER_00 1:20

Well, nearly all of our clients. Let me let me talk a little bit about like getting a bank line just real quick and different types of bank lines. If you're a small contractor, you know, two, three, four, five million dollar contractor, and you go to a bank looking for a line of credit and you're reasonably profitable, you have three or four or five years of experience doing the trade that you're doing, you have a reasonable balance sheet, right? Bank's probably gonna do a quick pass and look at your financials and probably approve approve you for a non-borrowing based line of credit of some sort of $500,000 million dollars, maybe. As you grow and you're asking for a three, four, five, even larger line of credit, the bank is then gonna start looking at your AR reports, the details of your jobs, and start matching what you can borrow against a borrowing base. Does that make sense? So they'll lend up this, call it 70, 75% of eligible accounts receivable. And what they do, they're gonna get all rid of all your retainage. That's not in your borrowing base. They're gonna get rid of essentially all 91 plus, right? They might get rid of any 60 day plus, right? So there's there's limits there. Now, everybody, if you can get a bank and get a bank line of credit, get it, right? But if you're in growth mode, this is what a lot of contractors fall into the challenge of, and this is who we this is like almost all of our clients. If you're in growth mode and you're doing a lot more work at one time, your bank line or your bank borrowing base, if you're a little bit larger, is gonna have a hard time keeping up with the work in progress. That's where we come in. We can help you finance those materials and that labor on a weekly basis before it turns into accounts receivable. Right.

SPEAKER_01 3:16

Before it's a before it's what they care most about, which is an invoice.

SPEAKER_00 3:19

Which is an invoice, which shows up on your AR aging report, which shows up on your balance sheet, all that stuff, all the bank lingo, that's what they care about. Now, if you want to grow, you might need a supplemental tool, a supplemental loan program to help uh almost amplify the effectiveness of that bank loan. And that's how we work with a bank. We become second in nature to the bank, secondary position to the bank. We can create a subordination agreement with the bank. And what we're doing is we're creating receivables for the bank. So you, as a subcontractor out there, how do you maneuver that? How do you manage that? Well, if you do 30 days worth of work and then submitting your invoice and wait another 30 days, we've created a receivable for you once that invoice has been submitted. Guess what you can do then? You can either write us out until you get paid, leave more availability on your bank line, or you can use your bank line to pay us off.

SPEAKER_01 4:19

Right.

SPEAKER_00 4:20

Right? So it's like a cycle effect. Not only are you financing the work in progress, then you invoice, but you're also financing the second second half of that when you're waiting for payment. And when you're growing fast, those capital pools can be really can compound over time.

SPEAKER_01 4:37

Yeah. And I I think what's important to take from what you're saying though is a lot of times when you're looking at bank lines or you're looking at money in general or availability of money in whatever capacity it is, you're also looked to looking at and focused to look on cost. What is the cost of that money? When you're comparing banks and you're comparing lines of credit versus a borrowing base versus ABL structure or some combination, think about your cost after you get the structure right, the availability right. Because you can have one bank that gives you the lowest cost option for an ABL or invoice structure, but you get another bank that might be more costly, but they have a better borrowing-based structure. They have better covenants that you can actually meet. They're going to be more easy to work with in the confines of the structure they're giving you for the way that your structure of your business and revenue and work in progress and customers come in. If you get a loan that's even the lowest cost but out of alignment to structure, it will become the most costly loan you ever create because you won't have access to it and it can only create problems because you are you are giving up a lot of things when you have a bank relationship, especially, or a senior creditor relationship. You have to make sure they're willing to work inside and outside the confines of what your business is doing and how it's operating. And I think a lot of owners or a lot of CFOs or people that are looking at their first bank relationships, they're just focused on cost and they're making a bunch of assumptions on how they're going to be able to access that money without really knowing, and then they find out too late.

SPEAKER_00 6:13

Yeah. And some of our best customers came from our relationships in the banking industry as well. And I mean, Scott, tell uh talk a little bit about um one of our customers. We work with their bank weekly because we have like kind of a pseudo uh solution for them between their senior line, our line. Talk a little bit about how you interact with banks.

SPEAKER_01 6:36

Yeah, look, I mean in that particular scenario. In this particular scenario, the banker had a growing, very growing business. They were they were doing a lot of construction work. They were quite frankly growing too fast for the bank. And the banker, the relationship manager, wanted to do and wanted to help this customer a lot. The credit team inside the bank, which really we're all frustrated with. All credit departments are really annoying. And the credit team didn't feel comfortable with the risk. But so you got this banker who's got this great relationship. You have this customer who's worked with this bank because he's trying to grow his business. He got this line, got the access to cash, he's using it properly, and he's doing exactly what he said he's gonna do, growing his business. But now the bank's uncomfortable, or the I should say the credit department at the bank is uncomfortable with how fast he's growing. And so now they don't have access to capital to grow the business, and now he's actually being harmed by the business. But then, but then we fortunately had a relationship with this banker and the bank. He referred them over to mobilization funding, and we were able to give them a supplementary loan that allowed them to fuel the growth that he had on these new projects, get to the point where the project was cash flow positive, which is at the point when it was starting to invoice the job and putting invoices in, which now the bank got more comfortable with. In this particular case, they subordinated the projects to us initially that generated the certain AR. What all that means is they allowed us to use that as a part of collateral, unless they put it on their borrowing base, or in this particular case, maybe factored it or gave them some other options on it, or they used their line of credit. And then that allowed them now to grow all that, keep keep everything they had in their normal operating side. Now these extra projects, the extra growth, we were the capital source to provide the fuel that needed that done. And then the bank just pays us off. And so it worked out really well.

SPEAKER_00 8:24

Yeah. And then actually a funny part of that story is the the bank got a little bit uncomfortable. So we plugged now, they were doing their normal line of credit the whole time, but they were a little uncomfortable with growing as fast as this company was growing. So you felt, you know, you you you look back and they grew what 35% last year. We fueled a large portion of that growth. And what does the bank do? You know, Q2 of this year calls us and says, hey, we're comfortable growing with the company again. Yeah, now that now they want to take over a little bit of a. Double the line. Which they doubled the line. And they said, Oh, by the way, you we're gonna double the line, but hey, we're happy with you guys continuing to create uh accounts receivable for us and and and finance the work in progress. And it's been a great relationship.

SPEAKER_01 9:03

Yeah, and they love the visibility to the way things are being made. They love the visibility to making sure that uh materials were on time, that all that AR that they were financing is actually now good AR because it doesn't have any liens attached to it, doesn't have any um encumbrances of any kind because everybody's being paid.

SPEAKER_00 9:22

Well, yeah, let's talk about that for a second because that's a huge value add to banks. Right? So this AR that what Scott means is that this AR that they're funding or advancing against is good AR. In our program, we're making sure the only dollars that go out in our program take care of materials or direct labor or equipment rental, things that are actually creating economic value in the course of the project. That's right. Right? They're not just we're not just distributing dollars for them to distribute to themselves, which is, by the way, one of the reasons, one of the things that banks get really s nervous about is funded dollars going out and then the owner distributing to themselves for one reason or another.

SPEAKER_01 9:58

Well, not only that, but this this company, one of the ways they're growing is they started getting bonded, they started doing bonded work. Yeah. And it gets this our our program allowed the bank to be comfortable with bonded AR. Usually that's excluded outside of a borrowing base because the surety companies have a first position or right to those receivables. And so the banks don't let that invoice, the invoices generated from those projects, they don't let the they don't let the customers lend against that.

SPEAKER_00 10:25

Yeah.

SPEAKER_01 10:25

In this particular case, because we were helping them generate, getting them dollars to help generate those invoices on the bonded projects, but also making sure that lien holders, material vendors, sub suppliers, et cetera, were being paid, they now are comfortable actually financing that AR, which also helped the customer grow.

SPEAKER_00 10:44

Yeah. For the bank, in a in a relationship like that, for the bank, mobilization funding is essentially eliminating all ambiguity associated with any types of accounts receivable. That's right. That's that's effectively what we're doing, which is the gold standard for a bank to understand truly what is the value of the asset that I'm wending against. That's right. And we're effectively eliminating all ambiguity with that question. Yeah.

SPEAKER_01 11:07

So we work very closely with banks. We work very closely with our customers, who almost all of them have some type of banking lending relationship, some type of loan facility with a bank, whether it's an SBA loan, small line of credit, large line of credit, uh factored receivables, ABL line, whatever it is.

SPEAKER_00 11:27

Yeah. I mean, I think uh putting our program with a bank line of credit. It's perfect. Perfect line item or perfect lineup for breath.

SPEAKER_01 11:36

Good and agree more. Folks, share this video with some friends. If it may help you, if it helped others, if you think it's gonna help others, and you want to figure out how a loan program alongside your bank or just a loan program can help you grow your business, we'd really appreciate if you give this video a share. Have a great week, and until next time, may God bless you.