Construction Lending: Spreadsheets Are Out. Software Is In.
The lack of purchase inventory and affordable housing in America is forcing the construction lending market to expand and is gaining popularity, but many lenders are still reluctant to take advantage of this opportunity. The numerous moving parts associated with construction loan administration and draw management can be troubling, as these loans are typically considered high risk and expensive to service. Those lenders managing construction loan portfolios with spreadsheets could be failing to monitor loans for risk, neglecting to handle draws in a timely manner, and overlooking complicated compliance regulations. In an age of technology and automation in banking, many construction lenders still rely on spreadsheets to track their construction loans, but consider these spreadsheet shortcomings:
SPREADSHEETS CAN’T DETERMINE RISK
Few types of loans present more risk than construction loans, but spreadsheets do nothing to lessen this risk. At a glance, spreadsheets cannot stress test a portfolio, they do not reveal how well a portfolio is performing, or detail any problems within the portfolio such as scheduling conflicts, stale loans, inspection issues, or draw allocation discrepancies. Poorly managed construction loan portfolios greatly increase risk which often results in loss.
SPREADSHEETS DON’T MINIMIZE PAPERWORK
Let’s face it, spreadsheets not only create paperwork - they are paperwork. The number of people involved in a construction loan during any stage of the loan complicates the process. Lenders work with several separate individuals during post-closing alone:
• Builders - to ensure they stay on schedule
• Inspectors - to approve completed portions of work and ensure the builder gets paid
• Borrowers - to approve the builder’s draw requests
Updating all parties involved at every stage means generating paperwork and emailing or mailing it to each person. With spreadsheets alone, this process is not only inefficient and cumbersome, but in some cases the paperwork is lost, misplaced, or misdirected, resulting in costly delays.
SPREADSHEETS DON’T ENSURE COMPLIANCE
Due to the risky nature of construction loans, compliance and oversight consume a construction lender’s time and resources. Many lenders avoid construction lending simply to avoid the pitfalls associated with taking on these loans using spreadsheets because they’re not the right tools for tracking and compliance. The use of spreadsheets to track construction loans’ multiple moving parts creates massive headaches for lenders, compliance officers, and your sales force. Spreadsheets do not easily reveal problems, which means your lending team cannot easily see what issues to address and which items have slipped through the cracks, causing compliance nightmares.
In short, spreadsheets leave all the work, risk-management, and regulatory compliance up to lenders and their credit department support staff. With so many people involved, so much time unnecessarily wasted, and so many moving parts to track, spreadsheets create an enormous risk for human error that makes construction loans even more risky. Where spreadsheets fail, construction lending software prevails, taking the work out of the paperwork and the stress out of construction lending.
REPLACING SPREADSHEETS WITH MODERN TECHNOLOGY
What if you could successfully operate within the construction loan space without the need for spreadsheets? Simply replacing outdated processes with up-to-date construction lending automation and collaboration software can open the opportunity to expand your construction loan portfolio. Imagine ditching your spreadsheets and switching to a streamlined system that allows:
• Builder and Borrower Access - The flexibility for both to communicate the need for inspections and request draws.
• At-a-Glance Risk Determination - Construction lending software allows you easily run reports, assess risk, and stress test loans to see at a glance where your portfolio stands.
• Intuitive Regulatory Compliance - The power to immediately generate up-to-date compliance reports for auditing purposes when they are needed, with confidence the reports will be current and accurate.
• Administrative Flexibility - The ability to determine at a glance when a loan needs attention on an administrative basis and to take immediate action to correct a workflow problem.
• Budget Management - Perhaps the most important part of construction lending for lenders is the ability to control loan budgets. Constant access to the most up-to-date information on each loan in a portfolio means better controls, more flexibility, and the ability to grow each lender’s construction loan portfolio.
DON’T LET AVOIDABLE RISKS SCARE YOU AWAY
Ripe for entering, the current construction loan market grows every day. Too often, lenders overlook the opportunity to enter the construction loan market or grow their existing construction loan portfolio due to the perceived (and real) risks associated with construction lending. With interest rates creeping upwards, housing shortages, and more buyers willing to spend extra money to build the home of their dreams, it is an ideal time to enter the market. Minimize your risk by managing your construction loan portfolio right – with construction loan automation and collaboration software. Say goodbye to spreadsheets and mile-high loan files. Take advantage of an ideal market and today’s technology to grow your construction lending portfolio today.