When banks make a construction loan on a new office building or housing development, the funds usually are not provided to the borrower in a lump sum, but instead are dispersed as various project milestones are achieved. The administration of these credits are often handled on a simple spreadsheet—one for every loan. That might work for a small community bank that only makes a handful of construction loans a year, but not for Pinnacle Financial Partners, a $23 billion asset regional bank headquartered in Nashville, Tennessee that considers construction lending to be an important business it wants to scale in the future.
Pinnacle wanted a more efficient way of administering its construction loan portfolio, particularly after a series of acquisitions of other banks that also did construction lending. “We’re always looking for ways to improve efficiency,” says Pinnacle Senior Vice President Dale Floyd. “Coming out of the recession, we were growing fairly fast, had merged a couple of banks into us and everyone was doing construction lending differently. We needed some consistency throughout the organization, and to try to be more efficient at the same time.”
And that led Pinnacle to another Nashville-based company, Built Technologies, which has developed an automated construction lending platform that not only centralizes the administrative process, but promises to be an effective risk management tool as well. “Construction loans require coordination between the bank, the borrower, the contractor, the title company and third-party inspectors to review the progress of the project,” says Built CEO Chase Gilbert. Now all of these parties are connected in real time and everyone is looking at the same information instead of information silos, and the draw process can be managed more proactively. “We bring that process online to the benefit of everyone involved.”
Pinnacle and Built were co-finalists in Bank Director’s 2018 Best of FinXTech Startup Innovation award.
The benefits to Pinnacle begin with greater speed and efficiency. “It cuts down on phone calls and emails and paper,” says Floyd. “It reduces the chances for errors … because the [loan] doesn’t have to go through so many hands.” When banks are using simple spreadsheets to administer their construction loans and a builder wants to make a draw against their loan, an inspector will have to drive to the project site and assess whether the required work has been completed, drive back and write up a report authorizing a dispersal. With the Built platform, all this happens much faster. “[All the information] is there and it’s immediate,” says Floyd.
The platform also provides the bank with an enhanced risk management capability. “We do a lot of large loans,” Floyd explains. “I can pull a report at any time of every loan I have over $1 million, by location and by builder. I can track loans that have been fully funded, or I can track loans that we’ve closed but no disbursements have been made for three months. If we see that we want to know why. What has caused this project to stall?”
And when state and federal examiners come into the bank, Floyd can “pull up any loan that they want to see and look at the inspection reports, look at the pictures and see all the numbers,” he says. “That information is there for as long as we want to store it.”
Gilbert says Built spent nine months getting to know Pinnacle and understanding the bank’s goals for construction lending before work commenced on the project. “Pinnacle is a high growth bank and it was looking for something that would allow it to scale [that business],” he says. “The bank is also fanatical about customer experience and it wanted to find a way of giving its borrowers and builders a best-in-class experience.”
Floyd says Built also made some changes to the platform at the bank’s request—for example, building in a feature allowing a borrower to overdraw their loan with the bank’s approval if the situation warrants it. “They’re constantly looking for input,” he says. “They want to make the system better all the time.” And the new platform was easy to implement, according to Floyd. “That’s one of the things I was surprised about,” he says. “The training time is very short, and it’s very user friendly.”