5 Negotiating Tips for Construction Loan Financing

Filed in Business Management by on December 13, 2016 6 Comments

Approaching lenders for financing can be stressful. Here are five useful tips that may help make it a little easier.

  1. Do some research ahead of time. Try your best to find a local banker or lender who makes construction loans and understands the business of residential home construction. At the very least, you should look for one that is flexible and open to learning about the industry.
  2. Establish credibility early on. There is great value in establishing confidence and trust. Provide the bank/lender with your resume and company history, and make sure to demonstrate past successes. Provide references from satisfied customers and subcontractors with whom you have positive relationships.
  3. Come prepared. Before negotiating with a bank or lender, put together a thorough and complete packet of information about your business, including: up-to-date and easy-to-understand financials, a marketing plan for each project that requires financing, marketing collateral material and an accurate estimate of the project cost(s).
  4. Negotiate from a position of strength. Knowledge is power, so it’s beneficial to learn about local terms and conditions in the banking community. Know the loan-to-value ratios of your request, as well as the ranges acceptable to your bank. As a helpful guide on financing home construction projects, read Survive and Thrive in Building.
  5. Understand your banker’s needs. Know what regulations, requirements and internal management issues affect your banker. How much power or authority does the loan officer maintain? Is there a loan committee that makes decisions or a series of management signoffs? By understanding these needs, you will have a far better chance of success.

Negotiating with a bank or lender can be intimidating. Keep in mind that your banker has a job to do as well. Careful and diligent preparation can help ease the process, and foster positive outcomes.

Comments (6)

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  1. Nauman Ahmad says:

    The hard money loans can be taken easily provided that you prepare a great presentation to convince the lender. Since these guys are sitting to make money out of lending, you will get loan easily. However, you need to keep an eye on the terms and conditions of your loan so that you know the consequences for each circumstance when you fail to follow any part of terms and conditions. This will let you look at things more wisely.

  2. Current loan to cost ratios from hard money lenders are at 60-65% loan to cost (land cost + construction cost). Knowing the lender’s lending criteria upfront is typically the most important thing to know.

  3. Max says:

    Hard money loans are great, but it’s important you don’t over-estimate how long it’ll take you to finish the project. Many fix and flip’ers often under-estimate the length it takes to flip the property, and end up owing way too much money in interest. Worse, sometimes they run out of money which creates a huge predicament.

  4. FactorLoads says:

    Yes, I totally agree with what you said. I think that researching ahead of time will definitely help to avoid problems. Thanks for sharing this article.

  5. Philip says:

    Yes, I strongly agree with what you said. I think that by researching ahead of time. We will surely be able to avoid issues. Thanks for sharing this article.

  6. Wilson says:

    These tips are all very helpful. I think that this article will surely help me to finance my business. I think that my construction business will be funded easier with the help of this. Thanks for sharing this article.

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