After years of toiling with the idea, you’ve finally decided to bite the bullet and get started on that construction project you’ve been thinking about since the days of MC Hammer. So you start looking at your options and get approved for a bank loan. You’re so excited and already thinking about telling your buds at happy hour when you get the news: your project has to also be approved by an inspector.

Wait. What? Then why was the loan approved in the first place?

The financial industry has a laundry list of federal regulations. Why? Think about the risk for the lender: If the project is not finished according to plan, you might not be able to pay back the loan. So they’re doing this to cover their own behinds. And at the end of the day, you should be thankful for it too, because if they catch a glitch in your blueprints, they may be saving you from financial ruin.

What does the inspection entail?

The bank that approves your loan hires a third party to do the inspection. The initial part is called a Plan and Cost review, and it is just that….a review of the Plans and Costs. It’s a very thorough process that evaluates everything, from pre-construction services, all the way through completion, all of the documents. Sometimes there ate thousands of pages to be reviewed. If anything on the master plan or master budget is not viable, it’ll be rearranged accordingly. The inspector will also verify that you have the adequate amounts of workers, equipment, and materials for the entire project. In addition, the inspector will review regular progress reports to ensure that everything’s going as it should be.

All this information will be provided to the bank. Since your funding is disbursed in increments, this gives the lender an assurance that things are running smoothly before making the next disbursement.

You also may be required to pay for a payment and performance bond. This ensures that if for whatever reason the contractor pulls out of the project or is not able to deliver, someone else will step in to get the work done.

Once all of these ducks are lined up nicely, then your bank will issue a Commitment Letter, and you can be on your merry way to toast with your friends.

The Bank Inspector usually stays with the project and monitors Contractor’s Application for Payments on a monthly basis. He or she visits the jobsite to verify work is done that is billed for. They write a report and monitor all of the Lien Waivers by both the General Contractor and the Subcontractors. These waivers are state regulated process that insures that the subcontractors are being paid monthly.

How much will this cost?

 It will depend which type of inspector you need and the scope of the project. Are you building an office high rise? A shopping center? A private school? Each category will have different types of inspectors. Typically, the inspector charges a fixed fee for the Plan and Cost Review and a fixed fee every inspection. This is typically built into a loan, but it is smart to know your Bank Inspector and understand that he or she is there to protect you as well as the Bank.

At InVision Advisors, we can help you through this process. Thanks to our many years of experience in the construction industry, you can count on us to do efficient inspections. Contact us and let’s talk about your project.