By the time a construction loan shows up in your problem asset report, the damage has already been compounding for months. The key is identifying distress signals early — before the borrower asks for a modification and before the project stalls.
Here are five warning signs that experienced construction monitors watch for:
1. Draw Requests Slowing Down or Becoming Irregular
A healthy project draws on a predictable rhythm — typically monthly. When draw requests become irregular, skip months, or suddenly increase in size after a quiet period, something has changed. The GC may be experiencing cash flow issues, subcontractor disputes, or schedule problems they have not disclosed.
2. Increasing RFI Volume with Slow Resolution
Requests for Information are a normal part of construction. But when RFI volume spikes and resolution times stretch beyond 10-14 days, it often signals design coordination problems, scope gaps, or a breakdown in the owner-architect-contractor communication chain. Unresolved RFIs delay work and breed change orders.
3. Change Order Accumulation
A few change orders are expected on any project. But when cumulative change orders exceed 5-7% of the original contract value, it is worth investigating. Are these legitimate scope changes, or is the GC recovering margin through claims?
4. Schedule Slippage Without Recovery Plan
Every project experiences some schedule pressure. The question is whether the GC has a credible recovery plan. If the schedule is slipping and there is no documented plan to recover — or if float is being consumed without acknowledgment — the project is drifting toward delay.
5. Subcontractor Payment Complaints
When subcontractors start calling the owner or the lender about unpaid invoices, the GC's financial condition may be deteriorating. This is a late-stage warning sign, but one that demands immediate attention — unpaid subs create lien exposure that directly threatens your collateral.
The Case for Proactive Monitoring
Each of these signals is visible before a formal default. The challenge is that most lenders do not have the in-house expertise to monitor them. A loan monitoring retainer puts an experienced set of eyes on your portfolio every month — catching problems when they are still manageable.
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