Time is of the Essence: The Role of Timing in Construction Lending
As we’ve previously discussed, construction lending is complicated. Additionally, there are tools available to help lenders better mitigate the risks inherent to construction.
However, there’s a third piece to the puzzle that’s also important to discuss: Timing.
When it comes to lending on construction, even a few weeks can have a tremendous impact on both the safety of the deal, as well as the long-term viability of the client. Quite simply, timing is important in construction lending.
The slideshow below gives a solid overview of the importance that timing plays when lending to a contractor.
However, in short, the reason why timing is so critical on construction is because of suppliers: Anytime there’s a cash flow issue, suppliers are the first group to go unpaid.
When suppliers to unpaid, liens get placed on jobs.
When liens get placed on jobs, contractors and their lenders don’t get paid.
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For this reason, anytime a lender has a construction contractor on their books, it’s critical that they be on the lookout for any signs of trouble. At the first sign of an issue, it’s imperative that they act quickly to get the matter resolved.
Failure to do that can easily lead to massive losses for the bank, as well as long-term damage to the client’s financial future.
