Any construction project requires capital, skills, land and information. You may fund a construction project from your internal reserves or source it externally through financing.
As a builder or a construction engineer, you probably know financing a construction project can mean needing funds for 2 separate loan periods.
- Construction loan during the construction period
- A takeout or a permanent loan after the construction period (also called stabilization period)
A construct loan is used for up-front construction expenditure, where-in the borrower makes interest-only payments during the construction phase. Once the project is complete, the borrower still has to pay the principal amount plus the interest. The borrower will be keen to complete the construction as early as possible so that the interest amount disbursed is lower.
The second loan is after the stabilization period. Stabilization means when you add value to your constructed facility so that it is acceptable for consumers for occupation. The finished property after stabilization qualifies for collateral, so lending becomes less risky.
Once your facility achieves stabilization you will be able to obtain a permanent loan which can cover both the construction period and post stabilization period.
Obtaining a construction loan is not easy, because lenders perceive it is riskier than other types of lending. You may need to provide the following credentials to satisfy the lender.
- You belong to a reputed builder group having a defined plan for finished property.
- You have a skilled team that can deliver the project as per agreed schedule, within the stipulated budget and with high engineering standards
Lenders’ chief objective is to evaluate whether your project will succeed.
What kinds of business funding are available for you?
Depending on the type of project, you can go in for
- Internal funding from reserves generated through previous profits
- Institutional financing sources like banks
- Private financing sources
- Federal programs for special projects
- Alternative funding options
Most construction companies, big or small have come to realize that obtaining business capital loans is no easy matter.
Banks have tightened their lending practices even for small business funding. Even established construction firms and contractors are realizing it takes time to obtain project financing.
The financial institutions must understand that the construction industry also fuels growth for various other sectors such as cement, heavy equipment, sand and gravel, material transport and financial services.
Unfortunately, banks do not take into perspective growth projections while making construction financing decisions.
On the other hand, alternative business funding sources make their decisions based on the wider market segment that include increased demand for other segments such as construction material, services and human resources.
If you are a builder and looking for a loan, it can make sense to choose from among the alternative funding options.
Choosing Alternative Funding Group can be a smart choice to fund your construction project.
The group provides quick, easy and secure funding to all kinds of businesses on flexible terms. The primary aim of the Alternative Funding Group has been to eliminate the hassles companies encounter in obtaining loans from traditional sources.
If you are strapped for funds for your construction project, Alternative Funding Group will provide quick access to loans.