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What is a Fund Control and How does it Mitigate Risk for the Borrower, the Contractor and the Lender?

What is a Fund Control and How does it Mitigate Risk for the Borrower, the Contractor and the Lender?

Fund control plays a vital role in mitigating risk for all parties involved in the construction project.

A construction fund control is a process where a third party manages the proper funding of the project. They verify the construction budget, draw documentation, and work progress, to help lenders accurately manage the construction loan draw process. 

Here is how a Fund Control reduces the risk for the borrower, the lender, and the contractor:

Borrower:

A fund control helps review the construction contract, the proposal from the contractor, and contract terms, to ensure that the budget is in line with the requirements for the project. They may request additional documents from the general contractor to help them review costs and make sure they are appropriate.

Lender:

A fund control acts as a liaison between the lender and borrower. They monitor the progress of a project by physically visiting and photo-documenting the construction site to verify that labor and material improvements have been completed. This protects the lender from releasing funds in advance before the work was performed.

The requirement of lien waivers from subcontractors, when paid for work performed, helps mitigate the risk of future liens being filed for both the borrower and the lender.

Contractor:

A fund control requires a contract, detailed budget, draw requests, invoices, and lien releases from subcontractors. The lien waivers help protect the general contractor and ensure subcontractors get paid.

A fund control provides the contractor credibility and an excellent referral source for generating future business. It demonstrates they can build on budget and are administratively capable of completing a project protecting themselves, the borrower, and the lender.

On ground-up construction or extensive remodels, Fidelis uses a local fund control, La Mesa Fund Control. Link to their website click here.

La Mesa Fund Control has an experienced team of construction loan management professionals that help us mitigate construction risk. Their staff is well-versed in all aspects of the construction process and can fully deliver the complete “back office” support we need to help lessen construction lending risk, and they benefit all parties involved.

In a nutshell, a fund control helps make sure the project stays on budget, the contractor and sub-contractors get paid and reduces the risk of future construction liens on the property.

If you have a construction loan and need a lender, give me a call at 702-379-3468 or visit our website for my contact information.

If your loan request is not a fit for a private lender like Fidelis, we will help arrange the loan with one of our many conventional construction lender relationships and help you get your project moving.

 

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