June 19, 2018
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Portland financial services firm sees opportunity in housing rebound

Troy Bennett | BDN
Troy Bennett | BDN
Scott Simpson, president and CEO of Blue Tarp Financial in Portland, stands in front of a wall charting his company's growth since the 1990s.
By Whit Richardson, BDN Staff

PORTLAND, Maine — As housing construction picks up nationwide, a Portland-based company has positioned itself for growth by carving out a niche offering credit and marketing services exclusively to the building supply industry.

Founded in 1998, Blue Tarp Financial has remained relatively unknown in its own backyard. But that’s changing, according to Scott Simpson, who became CEO in February 2012.

The company, one of Portland’s few venture capital-based firms, hired 25 people last year to bring its employee total to 78. It has annual revenue “north of $10 million” and posted an annual growth rate of 35 percent last year, Simpson recently told the Bangor Daily News.

“We’re aggressively growing, and that’s in part a reflection of expanding who we can serve, and it’s also a reflection of the growth in the industry,” he said.

During the collapse of the housing market and subsequent recession, the number of home builders shrunk by as much as 50 percent, according to some estimates. Equally affected, though, were the tens of thousands of merchants in the building supply industry, one of the few sectors where businesses still provide in-house lines of credit to their customers.

Providing in-house lines of credit can mean unreliable cash flow and tying up large amounts of money that are unavailable to invest in the business. It also, if the housing market crashes, exposes merchants to enough bad debt to sink a business.

Removing that risk for small and medium-sized building supply merchants and providing them with a reliable cash flow is the pitch Blue Tarp Financial brings to the table, Simpson said.

The argument made sense to Justin Dubois, general manager of Quigley’s Building Supply in Fort Kent, one of the 2,200 merchants the company works with throughout the country.

Quigley’s is a fourth-generation business that has been around since the 1940s, Dubois said. He took over as general manager seven years ago after his father-in-law died. He signed up with Blue Tarp about 16 months ago.

“Obviously the business has changed a lot over the years, but what continues to be a major hurdle is dealing with accounts receivables and how that can be a major burden on your business,” Dubois, 30, said. “We looked to Blue Tarp to ease that burden.”

The pitch makes sense to industry watchers, as well.

Writing off bad debt is the No. 1 reason building material companies go out of business, according to Greg Brooks, president of The Building Supply Channel Inc., a New Albany, Ind., company that provides market research in the building material industry.

Fifty years ago, when building supply companies only performed two primary functions — delivery and credit — this service might not have made sense, said Brooks, who was only peripherally aware of Blue Tarp before being contacted by the Bangor Daily News. But times have changed.

“There’s a lot of businesses out there where a service like this makes good sense,” he said.

In Simpson’s first year as CEO, he began adding staff in the sales and marketing areas, taking a more aggressive stance on growth as the signs of recovery became more pronounced. Blue Tarp also added email marketing services to its offerings, according to Simpson, who held vice president posts at both VistaPrint and Capital One before arriving at Blue Tarp.

The company also recently added a large sign to the outside of its headquarters building on Congress Street, kiddy-corner to Monument Square.

“We’re a company on the rise, and we’re proud to put our mark on Monument Square,” said Simpson, who still lives in Boston but commutes to Portland for several days a week. “It’s a very small thing, and I’m sure five years from now we’ll probably gloss over it, but it’s a moment of pride to know that up until now, you wouldn’t know we’re here.”

‘It saves me sleep’

Jason Terry, owner of City Lumber Home Center in Huntsville, Ala., worked in finance before getting into the building materials business 12 years ago.

“Being in this business where all these mom-and-pop yards issue these credit lines never made sense to me. But it’s what everybody did,” he said. “As soon as I saw there was a professional company that could manage this side of it for me, [I signed up].”

About three years ago, right after Terry bought City Lumber Home Center from his father-in-law, he transferred his commercial lines of credit to Blue Tarp. In exchange for a small fee — it’s comparable to the percentage of a sale credit card companies charge retailers — Blue Tarp handles everything from approving new and expanded lines of credit, billing and collection functions.

Once a month, Blue Tarp gives merchants a predetermined lump sum — based on a percentage of the merchant’s volume — whether the contractors have paid their bills or not.

“I’ve been able to stay in business, and that’s a fact,” said Terry.

“It’s made my business more about what my business is, and that’s selling building materials and not managing credit,” he said.

It’s also brought him peace of mind. “It saves me sleep,” he said. “It saves me from any future bad-debt write-offs.”

The reliable cash flow helped Quigley’s in Fort Kent survive the tough times, but it also is helping during the recovery as the business needs to invest in new inventory and not worry about having to use his own line of credit for things like payroll and keeping the lights on.

“When it comes time to buying inventory and investing in the business, it’s so much easier when you have that cash on hand,“ Dubois said.

But Dubois said the service is probably not for everyone. He had challenges in Fort Kent explaining to contractors who have been working with Quigley’s for 40 years why they suddenly were required to fill out another credit application for a company called Blue Tarp Financial. He bets the company’s services will be more attractive to businesses in metro areas.

In the end, though, his headache was well worth it, he said.

“It wasn’t built for everybody, and not everyone is destined to be a Blue Tarp customer, but it definitely works for a lot of people, and it definitely helped us get through our most difficult times,” Dubois said.

As for the contractors, they sign their checks to Blue Tarp instead of their local merchant, and have access to the company’s technology platform, where they can track their purchases and pay their bills online or even on their smartphones, Simpson said.

A financial relationship with Wells Fargo Capital Finance enables Blue Tarp to handle the volume of purchases, estimated to reach $500 million this year, made by its contractors.

Looking ahead

Going forward, Simpson would like to see the company grow its revenue five to 10 times its current size within five years, and employ more than 300 people. The business’ scalable model makes that possible, he said. “The good news about our business is you’re able, with the platform we have, to grow really aggressively.”

The 2,200 merchants the company works with comprise a small slice of the roughly 40,000 in the marketspace nationwide, Simpson said. “We’re eager to get to the other 38,000,” he said.

While the company has been working with individual merchants to move their portfolios of contractors onto Blue Tarp’s platform, the future could look different as it builds up a critical mass of merchants where contractors could use their Blue Tarp account. But with only 2,200 merchants on the company’s network, the critical mass isn’t there yet.

If the business model sounds familiar, that’s because it’s similar to the one South Portland-based WEX, formerly known as Wright Express, used in the fleet management industry to grow to its current size of 1,300 employees worldwide, including 620 in Maine.

“I think we look to them as a big brother in some ways,” Simpson said. “In some ways, the story’s already been written; it’s just not been written in this space.”

The nature of venture-backed firms is that their investors will eventually look for an exit, but Simpson said seeking that departure isn’t at the forefront of anyone’s mind.

“I think the goal at this point is to build a big business. At some point, when it makes sense, there will be a change in ownership,” Simpson said. “The investors are eager to have that event be five years, seven years, however long it takes in order for us to build to whatever our destiny is.”

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