Answered: Why don’t permanent lenders usually…

Why don’t permanent lenders usually provide construction loans to developers? Do construction lenders ever provide permanent loans to developers?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter13: Other Financing Alternatives

Section: Chapter Questions

Problem 1gM

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Question

Why don’t permanent lenders usually provide construction loans to developers? Do construction lenders ever provide permanent loans to developers?

Expert Solution

Step 1

Permanent loans:

Permanent loans are loans offered by the financial institution for a longer duration.

The risk involved in construction companies is higher and insurance companies cannot underwrite the Credit risk involved in financing a construction project.

A long term or permanent loan is a loan that is already exposed to a high level of risk due to the duration of the loan. And involving credit risk without insurance is not correct in the above-mentioned case and hence permanent lender does not offer construction loans to developers.

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