A construction loan typically has a higher interest rate due to increased risk. What is one major factor contributing to this risk?

A construction loan carries a higher interest rate primarily due to the inherent risks associated with the construction process itself. One major factor that contributes to this risk is the potential for delays in construction completion. These delays can arise from various sources, such as adverse weather conditions, supply chain issues, or complications during the construction phase.

When a construction project is delayed, it can lead to increased costs, as the borrower may be required to extend the loan period or incur additional financing charges. These delays can jeopardize the timely completion of the project, ultimately affecting the loan's repayment. Lenders perceive this uncertainty as a higher risk, prompting them to charge higher interest rates on construction loans to mitigate potential financial losses due to unforeseen events that may extend the timeline or increase the cost of the project.

The other options, while they may contribute to overall costs or project feasibility, either do not directly impact the risk as significantly or are not as variable as the potential for construction delays. As such, the possibility of delays plays a crucial role in determining the risk profile of a construction loan.