If you work in the commercial real estate industry, you are aware of how important it is to maintain your cash flow and secure funding for your operations. You need to look into ways to obtain construction loan financing if you want to expand your operations and build your business steadily. You have access to bank loans, bonding, and credit lines as a contractor. To ensure a smooth financing process for your construction project, you should be conversant with the best practices for negotiating construction loans.
When approaching a lender for construction loan financing, real estate companies should bear the following best practices in mind, according to the National Association of Home Builders (NAHB).
Seek Out a Modest Lender
Numerous financial organizations assist real estate companies in funding their initiatives. To maximize your chances of receiving the construction loan, you must, however, find a lender who is both flexible enough to meet your requirements and completely knowledgeable about your industry. Small real estate companies frequently fall short of the strict qualifying requirements set by lenders. Therefore, increasing your chances of receiving the loan quickly can be achieved by choosing a lender who is knowledgeable about your industry and the needs of your project.
Nerdwallet states that small real estate firms can try online lenders rather than traditional banks when they’re looking for loans for commercial real estate, for instance. Online lenders with less stringent eligibility requirements and quicker funding times include SmartBiz, Funding Cycle, and Bond Street. Obtaining a loan from them is quick and easy, even though it does cost a little more.
Create Credibility Right Away
There’s every reason for potential lenders to have doubts regarding your eligibility requirements. It is therefore your duty to establish your credibility right away. Present the necessary documentation to your prospective lenders, including financial statements from both past and present years, a list and images of completed and ongoing projects, tax returns for the previous three years, an organizational chart for your business, an inventory list of the requirements for your business, and references from happy clients and subcontractors with whom you have a good working relationship.
In addition, exhibit a high degree of professionalism when presenting or meeting with lenders. If at all possible, get glowing referrals from your contractor friends, insurance agents, builders associations, and even rivals. All of these will assist you in building strong credibility in order to have your loan application accepted.
Be Well-Read for the Bargaining Process
During the negotiation process, bankers and lenders who provide financing for commercial construction loans are frequently extremely strict about the documentation and legal procedures. In a situation where the real estate market is exceptionally stale, as it was in 2009, potential lenders may also be extremely demanding, pressuring you to take on risks related to business and law that you would not have otherwise chosen to take. Therefore, you should compile a thorough amount of information about your company to make your negotiation less intimidating. An accurate estimate of the project costs, marketing collateral, up-to-date and easily comprehensible financials, and a marketing plan for each project that requires funding are typically included in the information.
Act Like an Expert in Negotiation
You still need to persuade potential lenders of your eligibility, even with strong documentation, particularly if the loan amount is significantly higher. Here’s where your expertise and ability to negotiate will really come into play. The NAHB advises familiarizing yourself with the specific terms and conditions used in the banking industry and understanding the ins and outs of your application from the perspective of the lender. For example, being aware of your application’s LTV (Loan to Value) Ratio and the range within which your potential lender will accept it can greatly strengthen your case. This is an excellent source for understanding the vocabulary related to real estate financing.
Find out about the abilities (and limitations) of bankers.
Sometimes obtaining approval for your loan application requires more than just having good negotiating or documentation skills. Numerous factors could influence whether your request for a construction loan is approved. The approval process can be delayed for a number of reasons, such as internal management concerns, requirements, and regulations. In a situation like this, you should make an effort to comprehend the loan officer’s skills, advantages, and disadvantages. This will assist you in finding a solution or in moving on to another possible lender. It will help you better prepare for negotiation if you are aware of any potential bottlenecks in your loan approval process from the beginning.
Last Words
Finding financing for construction loans can be difficult and time-consuming. To increase your chances of success, you must therefore prepare thoroughly, carefully consider the eligibility requirements, and possess strong negotiating abilities.
