The best way to protect yourself before starting any tenant improvements
When it comes to tenant improvements, the horror stories tend to overshadow the successful ones. From the vanishing general contractor to migraine-inducing delays, these common issues for small business owners can be avoided with a vital tool called fund control.
Fund control is a third-party company that manages the tenant improvements — major changes to your leased space — on behalf of the business owner.
While fund control mainly handles the disbursement of construction funds, it also serves as “an extra set of eyes” to ensure the work is completed properly, on time and on budget, said Ofelia Sarabia, who heads the funding-analysts team at leading lender and nonprofit CDC Small Business Finance.
Financial companies such as CDC Small Business Finance often outsource this function to an expert in fund control. CDC then facilitates the process to make the experience seamless for the borrower.
“It also gives the borrower more peace of mind,” Sarabia added. “With fund control, you’re pretty much in good hands.”
What’s the role of fund control in tenant improvements?
If you have never heard of fund control before, you’re not alone. Many small business owners only encounter this service when they’ve been approved for a business loan for tenant improvements, a construction contract is signed and work is about to get underway.
Think of fund control like an independent middleman keeping the peace among different parties involved in tenant improvement projects including the:
- Small business borrower,
- Borrower’s general contractor and builders, and
- Non-bank or bank lender.
If you’re working with CDC Small Business Finance, fund control is required if you’ve been approved for tenant improvement financing and a general contractor is involved.
All construction payments will come out of this fund-control account, also known as an escrow account. This account also serves as an official record of all payments made, reflecting when the payments were made and the parties who got paid.
“The small business owner doesn’t have to worry about trying to monitor every aspect of their project,” Sarabia said. “Fund control provides a level of expertise to answer borrower questions and concerns.”
Fund control encourages accountability on all fronts
One of the main benefits of fund control is that it keeps everyone — including the general contractor, builders and subcontractors — accountable during the tenant-improvement process.
Should a dispute of payment or project deadlines arise, all parties can refer to the fund-control record (and the construction contract) to resolve any disagreements.
Here’s a real-life example of when fund control came to the rescue to resolve a dispute between a small business borrower and his general contractor. They disagreed about the project-completion timeline, ultimately leading to a six-month delay for the borrower.
After a review, a fund control specialist provided back-up paperwork showing the delays were due to the general contractor, not the business owner. This, in essence, proved the general contractor wasn’t fulfilling his part of the contract, which entitled the borrower a refund to the tune of $20,000.
“Fund control is bulletproof evidence in any dispute,” said Sarabia, who is also involved in fund-control discussions. “It’s an extra level of accountability.”
Beyond tenant improvements: other fund control benefits
The benefits of fund control goes beyond keeping construction on track and general contractors accountable. It also:
- Ensures all liens are in place and released, protecting you from any claims before or after your tenant improvements,
- Keeps track of and secures required approvals, inspections and permits, and
- Eliminates the risk of legal action from a contractor.
Fund control records are typically kept for seven years, Sarabia said. This can be especially helpful for small business owners who need the proper paperwork to support tax write-offs.
The average cost to open a fund-control account is $1,000 and can be financed through a business loan with CDC Small Business Finance. While it’s an extra cost, it’s proven time and time again to add immense value to the loan process for small business borrowers.
What’s more, the time the small business borrower saves not having to manage construction details allows the borrower to focus on their business and other priorities.
Are you looking to lease space that needs tenant improvement work? Secure the affordable financing you need to kick off this process through CDC Small Business Finance. With fund control in place, you know you’ll have the protections in place for a smooth construction process.
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