Construction lending is not easy. Each project is unique, delays are common, material costs are uncertain, collateral isn’t straightforward, and there are multiple stakeholders involved with different incentive. That said, there is specific actions that can materially reduce risk in the process:

1. Independent Project Reviews - A third party review should assess sufficiency of overall funding for the project, ensure that funds are appropriately allocated across line items, and verify that there is sufficient detail to inform progress/draw inspections post-closing.

2. Contractor Background Checks - Despite being the lynchpin of construction projects, many lenders overlook researching the contractor. In addition to running a standard credit report, it’s ideal to also contact prior connections to screen for both competence and character issues.

3. Secure Data - Construction lending requires a significant documentation over a sustained period of time. Ensure that your team has a way communicate and share documents that is not only organized, but avoids exposing personal or private client information.

4. Integrated Quality Control - Independent inspectors may use different standards when evaluating projects. Working with a vendor that provides centralized quality control can ensure consistency across your reports and provide assurance of objectivity.

5. Track Early Indicators Of Risk - Early draws on contingency funds is one common example of troubled projects. Another potential flag is long delays between draw requests. Systems to easily track these indicators across your portfolio can catch issues in time.

Founded in 1985, NorthWest Construction Control (NWCC) provides leading lenders with streamlined yet comprehensive field services and risk mitigation solutions. As a provider of critical field services, our process is powered by proprietary technology, a nationwide network of vetted inspectors, and an experienced support team that together enable exceptional service nationwide: