In the current environment of high demand for labor and materials combined with a high
risk of government intervention,
construction lenders need to detect
warning signs of a borrower’s financial
difficulty at the earliest opportunity.
Requiring best practices for reporting,
compliance, payment, and other
construction functions is the best way
to minimize losses. The following
situations are red flags warning
that something may be amiss.
10 WARNING SIGNS
for Construction Lenders that
Problems May Be on the Horizon
BY BRIAN PAWLUCK, PRESIDENT, BKP ADVISORS
1 The absence of a clearly defined project scope.
It’s imperative for all parties involved
in a construction project—owners,
contractors, and subcontractors—
to understand and agree to the
project scope upfront. Without
a clear scope, excessive change
orders are inevitable, which will
lead to project delays. For many
construction projects, delivering
both on time and on budget remains
a challenge. Delays in execution
leave all parties involved subject to
potential damages and liability.
2 The owner is not retaining the appropriate holdback amount in
accordance with relevant legislation.
Construction liens are intended to
protect and provide some financial relief
to any person who delivers services
or materials to a site. An increasing
number of liens on a property are a
huge problem for any project and a
warning sign to both a lender involved