Overview 

Lending to construction contractors is risky business, but this Course will show you how to evaluate that risk, how to underwrite an appropriate lending structure, and how to monitor and manage that credit exposure.  The construction industry accounts for 10 to 20% of a local economy, so extending credit thoughtfully to this sector benefits both your organization and the market you serve. 

Topics discussed include:

• Volatility of construction risk in economic cycles—accelerator principle
• Supply chain risk for contractors—scarcity and volatility of construction materials
• Payment process for contractors and subcontractors
• Contractor status report
• Key elements in contractor accounting and financial statements
• Progress billings, retention, and collateral value
• Role of sureties in providing bonds to contractors—lien priorities
• Useful conditions and covenants in contractor loan underwriting

Learning Objectives

• Learn how to analyze key contractor accounting disclosures such as underbillings, overbillings, progress billings and the contractor job status reports
• Learn how to judge your contractor’s financial condition and performance compared to industry ratios and statistics
• Learn how to evaluate repayment ability by projecting operating cash flow based on the contract status report and the contractor’s financial statements
• Learn how to assemble key underwriting elements of loans to contractors into a viable credit proposal — sufficient and adequate cash flow, collateral, and guarantees to repay in full, on time, and as agreed