Construction lending comes with a lot of risks, so fully understanding those risks is an essential part of every lender's job. 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. Below are four big risk factors construction lenders should currently be aware of.
Material cost escalations
Escalation clauses and allowances
Global supply chain crisis
Labor availability
Despite all the risks, construction projects offer lenders fruitful rewards. Some lenders keep some of the risk mitigation practices, such as fund control, in-house to keep costs down. Electing to self-perform risk management should be a decision based on expertise and capacity.
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By Robert W. Barone
Private Lender, The Official Magazine of AAPL
Fall 2022 (Q4), p.32-36
Published on October 4, 2022
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