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Utah Business

Finding construction financing for small- to mid-size builders can be tough, but CoFi, a Utah-based startup, is determined to make it easier.

CoFi is streamlining construction financing for small- to mid-size builders

When Cameron Harris was a full-time developer, he had to court different lenders for different types of projects. From industrial to commercial and high-end residential, it was typical to have to meet with various banks, credit unions, or private institutions that specialized in each type of construction finance. 

While incredibly time-consuming and unwieldy, navigating each lender’s application process was just half the battle. Once financing was in place, each project necessitated requests to release funds at each phase of the construction—with inspections, paperwork, and turnaround times bottlenecking the process with each lender.

Harris figured there had to be a better way to manage construction financing. That’s what he and his co-founders Mike Lacey and David Rockwood set out to do.

From building software to creating a marketplace

In 2018, the three co-founders launched CoFi as a software to facilitate payments during construction. “That process is called construction draw,” Harris says. “When you have a construction loan during construction, that lender is not giving you all the money upfront. They say, ‘We’ll give you progress payments as we see there’s an asset we’re paying for.’ That process of proving ‘We’ve done the work, we need to get paid’ was time-consuming and frustrating.”

As CoFi worked closely with lenders and builders, they could see the broader need was to help provide access financing. “We kept going upstream to where CoFi now helps developers and contractors on the front-end to secure initial financing with partner lenders,” Harris says. “Now I’d say we manage the finances on construction projects from start to finish with our software.”

As a hybrid lending marketplace and SaaS provider, the Pleasant Grove-based company effectively shortens a builder’s financing timeline, which can expedite an entire project’s completion. “The lending partners we work with have done away with progress draw schedules,” Harris says. “Historically, you were only able to invoice the financial institution once a month for your construction loan. With our software being able to track and prove progress more consistently, we allow that developer and contractor to invoice whenever they need to.” 

Taking the process digital

Harris says that the pandemic helped with the shift to digital inspections. Initially, CoFi worked with inspectors across the country to document client progress. “It all went through our app—they could take pictures and update progress in real-time,” Harris says. “Covid opened the doors for digital inspections to be more accepted in the planning world.” 

Now, rather than waiting for an inspector to come out and document progress, digital inspections are captured by the contractors themselves, Harris says. From there, progress and actual percentages are updated by CoFi’s in-house processing team in 10 minutes. “The partners we work with trust our team. We have some of the best people in the fund management and construction space,” he says. “Instead of paying once a month, we can process payments whenever the contractors and developers need it.”

Leveling the playing field

Faster is always a good thing, and with today’s labor shortages, supply-chain crunch, and raging inflation, time literally is money. 

According to Supply Chain Dive, “Supply shortages, worsened by surging demand, have led to the largest annual spike of input prices to construction since 1987 when data collection began.” Competition for supplies is up, and the ability to pay for materials immediately can mean the difference between a project going forward or sitting idle.

Even large developers like ABG Builders are feeling the impact. “Material suppliers are making us pay for all materials upfront before they put the order in, even if it’s six months out,” says Natalie Manning, CEO of the Cottonwood Heights-based company. “With some materials, like steel, the price is only locked in for a couple of days. If we fail to pay them the full amount of the order within a couple of days of receiving their cost proposal, they either raise the price or sell the steel to another company.”

That game of musical chairs can’t be fun for anyone, but especially not for small- to mid-size builders. “When developers can tell a supplier, ‘I can pay you right away,’ that is very advantageous to the relationship,” Harris says. “Our sweet spot is small- to medium-sized contractors and developers, with loan sizes typically around $250,000 to $60 million. We help them better manage their finances with software, so they’re able to pay faster, maintain subcontractors’ loyalty, and offer discounts.”

More access to capital for everyone

Having just received a $7 million round of seed funding led by Blackhorn Ventures, MetaProp, and Tenacity, Harris points out that one of CoFi’s advantages is the strong relationships it has established with a variety of lenders. He explains that nearly every contractor who comes to CoFi is able to secure funding since the company works with different tier institutions that can accommodate lower-risk to higher-risk projects. 

“If you look at construction lending, you have your traditional banks and credit unions. They’re going to be the lowest rates and fees, but they are going to be the hardest to qualify for,” Harris says. “You’re going to have to have more equity in the project to qualify for that bank rate and fee. Then you have mid-tier players who say, ‘You don’t have to have as much equity in this deal, but you’re going to pay a little higher rate and fee because you’re a little bit riskier.’ Then you have the hard money lenders who say, ‘You’re even riskier, or the project is even more leveraged, so you’re going to be higher than the mid-tier money.’ Depending on the type of project a contractor has, we should be able to find someone to lend for that project.”

That peace of mind is winning the trust of developers and contractors across the country. “We have repeat business constantly because once you know you can go to CoFi and get funded, you have that post-close experience,” Harris says.