What Tightening Credit Means For The Built Environment & 5 Startups To Watch

The credit markets are tightening in the wake of the two largest bank fallouts since the financial crisis of 2008, and the implications of Silicon Valley Bank’s dismemberment (currently being sold off in pieces) puts elevated pressure on small businesses that rely on local lines of credit for normal operations.

In the weeks that followed SVB’s collapse, small/regional banks – who are responsible for financially supporting startups & small businesses in the US – saw ~$400B in cash withdrawals from fearful depositors (moving either to money market funds or a larger/“safer” financial institution), which has catalyzed what's beginning to look like a tidal wave of credit line retractions.

This news has significant ramifications for subcontractors, tradesmen, and smaller suppliers who rely on these lines of credit to support normal operations. This will almost certainly lead to some distressed M&A and business failures.

The silver lining I see here is an opportunity for deeper industry digitization. The numerous FinTech startups in the built world are all addressing the undue financial burden put on smaller construction entities (subs, trades, and suppliers) who are largely responsible for holding on to that near-term P&L deficit or accounts receivable (AR) – initial purchase of supplies and equipment – up to 30 days after completion.

According to a study done by Clemson professor, Dennis Bausman, general contractors wait on average 99 days for payment, while subcontractors wait an average of 167 days.

Since 2021, FinTech built-world startups have seen $500M in inflows across 20 deals, all aiming to reduce financial burdens on any one entity. The tightening credit market might be the push this sector needs to adopt the operational efficiency-improving FinTech solutions available. The nascent digital payment solutions in AEC may finally be positioned to penetrate the most digitally resistant part of the construction industry: sub/small contractors.

Check out BuiltWorlds Venture Dashboard for live coverage of deals within this startup niche.