Many lenders can underwrite credit risk, but many don’t understand construction risk. When a contractor bids a job for a client how does a lender know if the bid is accurate?  How competent is the contractor and are they experienced enough to complete the project?  What happens if a project is under bid?  Does the borrower have the funds to pay cash for the difference?  The loan is funded, and there isn’t anyway to increase the loan amount, the lenders risk just skyrocketed!  What if they take back a project that is half built?  Is the project worth what is owed in the current condition?  It has to be sold at a discount to someone who will finish the project which has risks to the buyer for liens, expired permits, subpar work and the lender loses.  So they way to avoid that risk is to avoid lending on construction projects.




Construction risk mitigation companies, like CFSI, partner with lenders to help them make good decisions as it relates to the contractor, project, fund control and inspections.  The focus of these companies are to be the SME (Subject Matter Experts) for the lenders to ensure the contractor is licensed, insured and experienced to build a project.  Is the project feasible? Is it bid correctly, for the market and is it specific enough to ensure the finishes are what is expected by the borrower, lender and valuation.  Does the contractor pay his subs?  Is he a slow payer, is the project behind schedule?  Are there liens on the project and is the contractor using funds from this project to finish another project?  Did you inspect the project and validate the work was complete to the plans and specifications?   All of these items are aspects of the business that many lenders do not have experience with and they hire firms to do this work for them and they focus on making good loans to good borrowers.




About the Author, and CFSI




Brian Mingham is the founder and CEO of CFSI Loan Management, a Los Angeles based company that works with lenders to mitigate the risks associated with construction loans. CFSI oversees the entire process, from contractor review, to project feasibility reviews, fund control, and draw inspections. Through this process, CSFI helps ensure that a construction project is completed on time, on budget, free of mechanic’s liens, and ready for permanent financing.




Lending on construction projects include inherit risk. CFSI Loan Management provides lenders with a resource to reduce this risk, without the expense of creating an internal construction operation. For more information please call or vist:




855-344-2374




www.ThinkCFSI.com