Construction Lending Essentials: Draw Inspections

You work for a bank institution and made a construction loan. The new project is now underway. If all goes well, the builder will send draw requests for labor and materials according to your draw schedule, make steady progress and complete the project on time and on budget. Although many lenders are excellent at managing credit risk, construction loans require a deep understanding of construction completion risk.

A construction lending best practice used by most lenders is ordering draw inspections to validate progress in conjunction with disbursing funds.
During November 2019, Owners Construction Advocate completed 19 successful construction loan inspections for its banking clients. These inspections are critical to ensure that the Loan-to-Value percentages in their real estate lending portfolios do not exceed bank regulator guidelines. Owners Construction Advocate turned in all 19 with spot-on accurate percentage of completion and with supporting photos.

REDUCE RISK WITH DRAW INSPECTIONS

With experience overseeing over 8,000 construction loan inspections for financial institutions, Owners Construction Advocate follows along with the builder so that you can ensure the loan proceeds are going into the collateral on the loan, and to identify construction problems as early as possible.

Let’s say a builder falls behind. You, as the bank lender, risk disbursing money for work that hasn’t yet been completed, or worse, won’t ever be completed. The sooner you’re made aware, the sooner you can take corrective action or work with that builder to alleviate the situation. Draw inspections also prevent horror stories like a builder failing many City Building Inspections and the bank not being aware or requesting funds on a project that isn’t actually under construction. These are expensive mistakes that you don’t want to make.

You can mitigate these risks by scheduling regular draw inspections with experienced draw inspectors like Owners Construction Advocate who become your eyes and ears on the jobsite. During a draw inspection, they will determine if the builder has completed work according to what has been requested and determine the appropriate funds to be released.

WHAT TO EXPECT FROM DRAW INSPECTIONS

Owners Construction Advocate visits the work site to evaluate current progress against what has been reported. They look specifically to validate that all work items and materials included in a draw request are, in fact, in place, and assist in determining the appropriate release of funds. We work with banks to report on a number of items, including:

• Tracking that each line item or stage of construction is complete, as reported, by percentage
• Photographing materials present on-site and work put in place
• Assessing quality of work, reviewing structural components, scheduling progress, noting any concerns
• Provide narrative report

For your next construction loan, contact Owners Construction Advocate at 704-575-5154 to help you minimize risks and be your advocate.

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