Credit Evaluation School Instructor eBook - Oct 2023

SCENARIO 4 CONTINUED

 Bank advanced $500,000 to a contractor for the purchase and renovation of a downtown building.  The price “as-is” was $250,000, with the remaining $250,000 to be used for the renovations.  The appraised value of the building was $250,000 “as-is” and $700,000 “as completed.”  Borrower has drawn all $250,000 of the renovations line as some major plumbing and electrical items were discovered in the process. Borrower has determined it will take another $250,000 to complete the project.  Borrower’s rich uncle has gifted him the $250,000 additional funds needed and borrower will be injecting these funds into the project.

 For this loan, would you recommend:  Pass  Special Mention  Substandard

 Doubtful  Loss