Introduction
Construction projects require huge capital outlay, and one may have problems in getting the required financing. However, it is possible today to access construction loans from the leading banks in the world. The bank may not necessarily be in the same country as the applicant but could be an international bank. Technological advancement has made it possible for business to be conducted between people in different parts of the world.
Step 1
There are various options of construction loans available. Applicants for the loan should know which option is suitable to them. The loans range from short to long term periods. Each of these options comes with their cost and the implication of these to the business should be considered thoroughly.
Step 2
Before settling for any construction loans, it is advisable to talk to various banks to find out what they have to offer. Many banks may have the funds to lend but do not provide options to borrowers as they have one or too few alternatives. To avoid having to visit the banks' construction loan brokers are an option of getting to discover the best banks. These brokers work on behalf of the lending banks and have an access to many of them.
Step 3
The best bank to get construction loans from should be experienced in the field. Regional banks are more likely to have more exposure and experience with the local construction industry than national banks. Construction loans are complex and it is therefore, important to deal with a bank that is experienced in this kind of loans. Those banks that have their loan officers inexperienced in matters of construction loans should be avoided.
Step 4
The request for the loan is incomplete without a duly filled application form. It is through this form that the applicants tell why they need the construction loans. The application will tell the lender why the loan is required and how it will be repaid. It should be noted that this is the main document, but it will be used alongside other documents. The additional documents will vary from one bank to another. The credit ratings of the borrower will be considered while by the banks while granting the loan.
Step 5
The element of interest in the construction loans just like in any other loans may add to your costs. It should be decided by the borrower from the onset, whether to fix the rate of interest or to float it. A fixed interest rate means that the rate will remain the same even if the rates rise or drop. Floating rates means that the rate of interest will rise or fall depending on the prevailing financial winds. This is a tricky situation for any borrower but at the end of the day a decision has to be made.
Tips
Banks that deal in construction loans require two out of the three types of insurance needed in the construction industry. These are general liability and course of construction insurance. The third type of insurance is workman’s compensation and is necessary for builders with employees. Though this is not a legal, it will help in the consideration of the application with the banks.
Sources and Citations
None.
