5 Policies and Procedures That Should Be Part of the Development of a Construction Lending Program
If your company is considering adding a construction lending program then you already know all the ways in which it can improve your company. What you may not know is all the of the policies and procedures that should be part of your development process. Keep reading to learn about them, then contact ECL Software
to ensure your fund control needs are taken care of.
- Have a Strong Risk Management Policy in Place The purpose of your risk management policy is to make sure that you understand potential risks, you know how risk averse you are, and you know what to do if particular risks become a reality. Whatever your governing group is, they should ratify a risk management statement along with ongoing policies and procedures being structured around this statement.
- Create a Training Process for Construction Loan Origination It is important that employees have basic training and orientation about the construction loan process. If you do not do this, then you can end up with originators who do not know the most proficient loan products, who do not understand the in-house policies as well as best practices for the industry. They may not even be familiar with applicable federal or state regulations. Do not assume that they know this information – the training must be comprehensive to assure that any gaps in knowledge are filled.
- Create a Construction Information Guide for Certain Parties It is wise to have a construction information guide for both borrowers and contractors. It is natural for them to have questions, and it will be up to you as the lending institution to set clear expectation for everyone involved. Setting these expectations is essential before you even start working on new originations.
- Create a Contractor Acceptance Form One of the most important decisions you will have to make on a regular basis is which contractor is right for your projects. It is best to have specific criteria so that no one is making a decision based on bias or out of convenience. What to look for in a contractor should be part of your risk management policy. Then create a form or questionnaire that you go through for every one you consider.
- Outline Draw Administration Policies and Procedures As we mentioned above, it is essential that loan origination follows best practices to be in compliance with your risk management profile. It is just as important that you have post-close activities – in particular draw administration – following equally specific protocols. At ECL Software we offer unique construction management fund control software that can make this easy.