In a loan-financed project, delays increase financing costs and overall risk. Which statement best describes the financial impact of a one-month delay?

• A. It reduces financing costs because lenders adjust terms favorably.
• B. It can cause a cash shortage that may lead to bankruptcy.
• C. It has no impact on project economics if rents are unaffected.
• D. It only affects construction scheduling, not financial viability.

Answer: (B)

Delays in a loan-financed project raise carrying costs and risk because debt service and financing fees keep accruing during the longer construction period, while revenue generation starts later. A one-month delay stretches the time before cash inflows begin to cover ongoing costs, so cash flow can tighten quickly. If the project runs short on cash, you may need additional funding or reserves, and lenders may tighten terms or require more collateral; if the cash shortfall is large enough, default becomes a real possibility, potentially leading to bankruptcy. Even if rents don’t change, the timing gap between costs and revenue hurts the project’s financial viability by increasing financing charges and the risk of not meeting debt obligations. That’s why the statement describing a cash shortage that may lead to bankruptcy best captures the financial impact of a delay.