Contractor Field Exams

Lines of Credit to Contractors carry additional risks to Financial Institutions, including construction and completion risk.  In addition, many Contractors use the Percentage of Completion method of accounting which adds another dimension for financial analysis consideration.  To provide our clients with the additional analysis particular to Contractors, ABLS has specifically tailored our Field Exam to address those risks.  In addition to a review of Accounting Systems, Financial Statements, Contracts Receivable, Accounts Payable, and Payroll Taxes, our Contractor Exams include a review of Contracts and Schedule of Contracts in Progress.  The Contracts in Progress section provides important information about:  1) Billings in Excess of Costs and/or Costs in Excess of Billings, which may affect the collateral position; and 2)  Current and historical gross profit margin analysis.

In recognition of the various interests that can be superior to the Financial Institution’s Security Interest in Contracts Receivable, ABLS’s Contractor Exam provides their Standard Position Borrowing Base calculation which recognizes the superior lien rights of Suppliers, Sub-contractors, and Surety (Bonding Company).

For a good summary of the unique risks the construction industry poses to Lenders, we recommend reading “Lending to Contractors: Evaluate Performance Risk of All Contractors Carefully” by Richard A. Clarke.  A link to this article is here.

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