Fund Control for Private Hard Money Loans

Fund Control for Private Hard Money Loans

Managing rehab and construction loans can be a labor-intensive and time consuming job.

Private hard money lenders have the option to hire third-party providers and outsource different processes including payments so they can concentrate on other important tasks.

This outsourcing is known as fund control and it revolves around having someone manage the disbursement of funds during construction projects.

What is Fund Control

Fund control, as the name suggests, is a way to control funds. In the private lending industry, this is a vital service for any lender that provides loans for renovation or construction projects.

It refers to hiring a third-party (not the owner, construction manager, or bank) to manage payments to the general contractor, subcontractors, and suppliers.

The fund control company acts as the intermediary between the lender and the borrower, and works to make the disbursement process a positive experience for everyone involved.

Why Do Lenders Need a Fund Control Company?

The construction process can be quite complicated to manage as it involves several parties, each with their own unique needs.

It can get difficult for the hard money lender to manage everything without the right support. A fund control company can shoulder the responsibility and make things easier.

Most private lenders hire the services of a fund control company before they process a hard money loan as these companies even offer due diligence services that involve studying the applicant to ensure it’s a good opportunity for the lender.

Lenders receive detailed reports about the risks involved in a property and if it’s a feasible option or not. Private lenders always take the final call, but assistance from a fund control company can make things easier.

Moreover, fund control can help identify problems as they occur, and in some cases even before, so that the lender has enough time to make corrections.

What Do Fund Control Companies Do?

Companies that offer fund control services manage the process of making sure the construction/renovation work is completed as expected. Most work with inspectors who inspect the work, and give clearance to release the next batch of money to the borrower.

Many of them will hold the funds in escrow, so the lender is not holding on to renovation funds. They write checks that pay contractors and suppliers and lenders to reimburse the fund control agency, plus their fee.

In addition to this, fund control firms may also offer additional services like work progress inspections and construction budget review.

Their goal of every fund control business is to help the lender manage project funds and ensure every penny is maximized.

How Do Fund Control Companies Operate?

While the process differs from company to company, most follow this pattern:

• Review the documents including the proposal and contract terms to ensure the budget looks feasible and in line with project requirements.
• Submits a detailed draw application to the parties involved. Some backup documents may be required. These include supplier and subcontractor invoice copies, conditional lien releases, etc.
• The fund controller will get the site inspected to ensure the work is progressing as expected. The inspector may ask the GC to clear doubts, if any, and provide updates. Moreover, the inspector may choose to adjust the application based on the review and documents submitted.
• Once approved, the fund controller begins to write checks that are sent to the parties.
• The lender is kept in the loop by sending regular updates in the form of reports, photographs, etc.

The right fund control company can help lenders reduce the risk and operate seamlessly.

At PrivateLenderLink.com, we strive to help lenders find fund control companies that serve the private mortgage industry. Scroll up and view each company’s profile, then visit their websites to learn more, and contact them directly.