Adapting to problems and changes in construction lending.
Construction lending can be challenging. There are many unforeseen events that can put a lender at risk on any given loan. Things change and problems arise that people and institutions need to quickly adapt to. There is a way for lenders to be the catalyst in bridging these problems.
Here is an example of changes, and problems that are common in residential construction.
An owner is ready to build their dream home with a contractor and they have the financing in place.The project starts and right off the bat there is a soil issue and the cost goes up $20,000. They elect to pay for the increase with their contingency funds in the bank loan. The build goes on and framers are building the main level. The owner walks through and there are a few changes that will make a huge impact to the home design. The contractor informs the owner that the changes will cost $10k. The changes have been made but the lender only finds out on the next draw. Work is already done and the lender is stuck unless they ask the owner to bring more money to the table. The lender is starting to get uncomfortable with the job as it is over budget and the owner seems to be out of control. Everyone promises to stay on budget the rest of the way, and luckily they do. As they near completion however, another problem arises. As they start the landscaping the owner asks about the pool in the landscaper’s bid. The landscaper says “what pool?” At this point the owner is livid and storms off the job. The builder also recognizes there were other cost increases with winter work and adds them to the next draw. The owner gets the draw and the stress is mounting. The owner rejects the draw and subs start filing liens. The landscaper is on hold, the finishing touches on the inside of the house are incomplete and the loan has already passed 2 maturity dates. Interest rates are rising and all parties are considering their options.
With so many variables in construction, lenders have to be weary of every aspect of the job over time. Currently lenders use processes and tools that are paper based, slow, error prone, and burdensome for all parties.
CoFi helps lenders build a relationship with borrower, builder, and sub, by providing a technology platform and solution to the draw management pain. CoFi empowers lenders with data and automation to make decisions and be proactive with problematic loans. Problems and cost increases will always happen, but if there is not a collaborative solution, with transparency and speed, lenders will find themselves in late stage negotiations with angry customers.
CoFi exists to help lenders de-risk construction loans while they are in process.