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The fundamental reason that construction lending involves unique risk management challenges is because this does not exist in the beginning of the lender/borrower relationship.
What is collateral?
I'm a third part that observes and documents construction progress.
What is an Inspector?
In everyday life, getting to one of these usually calls for celebration.
What is a Milestone?
The most trusting lender/borrower relationship in construction lending is often with large homebuilders who use this type of LOC structure to limit the need for inspections and detailed budgets and keep the capital flowing.
What is a Borrowing Base?
At the simplest level, these control what funding sources get used first.
In order to ensure that the borrower has a significant stake in the success of the project, the lender will often require the borrower to bring this to the table to supplement the loan funds.
Whether I'm a lender teammate or an external party this is what I'm called in built when I'm added to review a draw request before it is disbursed even though it has already been approved.
What is a Secondary Approver?
If you're playing golf and you can't see one of these, you're either a long way from the hole or you're deep in the rough.
What is a flag?
This type of LOC requires budgets for every unit of collateral and draws are made against each unit. However there is only one loan closing and number.
What is a Master Guidance Line of Credit?
$200 Bonus: What is at least one other name for MGLOCs in the industry.
We'll only give you part of what you asked for when we're using this risk mitigation tool.
What is retainage?
This is a percentage value a lender uses to cap the amount they are willing to fund on a project in order to ensure they never have more money in it than it is worth. It's often referred to as LTV.
What is Loan to Value?
$200 Bonus opportunity: What is LTC and/or LTCP?
The builder may request a draw, but Built can be set up to require this from a borrower before the lender can disburse the funds.
Last time you flew, hopefully your pilot used one of these before taking off.
What is a checklist?
Virtually all homebuilder LOCs use these to dictate the types of collateral the lender is willing to lend toward.
What are sub-limitations?
This will allow us to use specific funding sources to fund this but not that. Or to only fund some of this and that.
What is Eligible Use of Funds?