Red Flags to Watch Out for When Considering Contractor Acceptance
As a construction lender, you have many things to prioritize. The good news is that there are steps that can be taken to reduce potential risk. ECL Software can offer specialized fund control software made for construction lending. We also offer unique solutions to other issues in this industry. Today we are going to discuss some red flags we encourage our clients to be on the lookout for during contractor acceptance.
What do we mean by contractor acceptance?
The simplest way to put it is that contractor acceptance is when a lender vets a contractor. This likely includes a background check and verification of references. The purpose is to try and mitigate risk and increase the chances of success. It is a matter of due diligence during the pre-closing process. Due to the fact that as lender you will be working with this company throughout the life of the construction loan, which can last as long as nine months, you want to ensure you are doing your job.
Contractor acceptance should be considered part of the loan approval process. Through the process, you should not only do a general background check and get references, but you should ask specifically for references covering both their past clients and financial references such as subcontractors of other banks they have worked with.
As you go through the process, keep an eye out for these red flags. We know that you want nothing but the best when accepting risk via loans. Be sure to consider our construction lending software services to see how we can help you.
Red flag: Offered references are old
If you request references from a contractor and all of those references are old then this may be a bad sign. Of course, it may be that they have a sheet or references and simply have not updated it in a while. However, it is also possible that their recent work has dropped off in quality. You do not need to know how they were doing business ten years ago – you need to know how they are doing business now.
Red flag: Concerning answers from suppliers or subcontractors
When talking to suppliers and / or subcontractors, ask them about line of credit, whether or not payments were on time, and what their overall relationship with the contractor was. Ask them for specifics on a project. This ensures that you are getting a full picture from a company that actually has experience with the contractor in question.
While it is not possible to reduce risk to 0%, there are steps that can significantly reduce risk. The above are good rules of thumb to follow – and our software can help too. Contact ECL Software at firstname.lastname@example.org or 800-625-5972 for assistance.