When it comes to construction lending, nothing is more important than going in with your eyes wide open. Construction lending comes with a lot of risks, so fully understanding those risks is an essential part of every lender’s job. In fact, there are significantly more risks in construction lending today than there were just two years ago.
Despite those added risks, the strategy for a successful construction loan remains much the same: knowing fully where your project stands, understanding your project’s risks and how the project can best be executed, and using the proper tools and best practices to mitigate potential risks. The execution of the project doesn’t really change, you are just “building a better mousetrap.”
Expecting the unexpected and properly preparing for ways to mitigate risks is just one part of a lender’s job. Keeping current with the market, the changing practices of contractors, and the risks they both present is the second part.
The following article, featured in the Fall 2022 issue of Private Lender Magazine by AAPL, reviews the four big risk factors construction lenders should currently be aware, ways lenders can vet the project prior to closing on the loan, and additional protections that can be put in place throughout the construction process.