3 of the Biggest Construction Lending Risks and How ECL Software Can Help
No construction lender knowingly takes on unnecessary risk but all too often, risk is taken on just the same. At ECL Software we work with many clients who have had great successes and those who have dealt with harder times. Today we will discuss three of the best lessons your construction lending company can learn if you want to lower risk.
1. Not Completing the Job within the Terms of the Interim Construction
The fact of the matter is that when the budget is managed properly, funds should not run out before the project is completed. That said, when the budget is not properly managed this exact thing can happen. This is part of what our fund control software does – it gives you instant snapshots so you always know where your budget is.
Not completing the project within the term of the interim construction period can be risky for everyone involved but there are ways to reduce the chances. For example, calculating and correctly managing construction loan holdbacks. Never giving builders more funds than makes sense for the percentage of work they have completed. Finally, there is no substitute for verifying construction process.
2. Having no contingency in your budget
If you do not have a specific budget for contingencies, such as an unexpected expense like the price of materials doubling overnight, then you could easily go over budget – and this could delay the completion date. Other issues can happen too, such as the need for repairs to meet health and safety codes.
You should note that FHA 203(k) and Fannie Mae HomeStyle renovation loans require between 10-15% of the repair amount to be held specifically for contingencies. There are a million and one reasons that a project can go over budget but it does not have to be the end of the world – assuming a contingency budget was in place.
3. Skipping Progress Reports
There’s no way around – commercial lenders have a lot of irons in the fire and it would be impossible to know the daily status of every job every day. However, this does not mean that you can go months without finding out about progress. With JIDO and other software available from ECL Software, it is easy to stay up to date at all times.
You can allow anyone access to your projects and decide what information they have access to. As those involved update their progress daily, it takes them just a few moments but ensures that those who need to know have the information they need.
Let Us Show You More During a Free Demo
Are you interested in learning more about how our unique software products can help your company reduce risk and increase profits? Then contact ECL Software at 800-625-5972 and request a free demo. We will walk you through it step by step and show you the many ways you can customize our products to exactly meet your needs.