Question

While the risks of construction lending may be less in a number of respects than those associated with land acquisition, banks still require a premium in their lending rate as compensation for the risks involved. For construction loans, banks typically require a premium above LIBOR that ranges from

Answer 1

Answer: C. 150-250 basis points

Step-by-step explanation:

Banks now charge between 150 to 250 basis points above the London Interbank Official Rate (LIBOR). This means that they charge a premium of between 1.5% to 2.5% over LIBOR for construction projects.

Like earlier mentioned, risks of construction lending may be less in a number of respects than those associated with land acquisition but however there are still risks. Risks such as low Tenancy when built, the potential Environmental problems and location.

This is why it is necessary to charge such a premium which is actually a very competitive rate amongst Banks.

If you need any clarification do comment.