ABA Study Provides Window into Pre-COVID, Post-COVID Construction Lending

The American Bankers Association today released a research study examining banks’ construction lending activity. Based on a study examining construction lending at the end of 2019, as well as interviews with bankers both pre-COVID-19 and after the pandemic erupted in the U.S., the report shows that more than 90% of bank respondents reported at the end of 2019 that their construction lending business had grown or remained stable over the past two years. When questioned again after the arrival of COVID-19,  they “acknowledge[d]that construction lending may slow for a while, and it will be necessary to rigorously analyze the portfolio and work with borrowers,” the report found.

Produced by ABA’s Endorsed Solutions group in conjunction with ABA Endorsed Solutions provider Built Technologies, the report shows that banks offer a wide range of services to support the $1.3 trillion in annual U.S. construction spending. Nine in 10 respondents offer commercial real estate and single-family residential new construction financing, while 78% finance consumer renovations and 64% lend for commercial flips of homes. Two-thirds provide lines of credit to commercial home builders.

Just prior to the pandemic, banks said they planned to improve their construction lending businesses over the next two years by expanding training (33%), enhancing their loan administration teams (26%) and updating their marketing and education materials (22%). Fourteen percent of lenders said they would implement a major tech upgrade, and 13% signaled they would reduce or simplify loan fees.