What Information Do I Need to Apply for a Construction Business Loan?

Ravindra Ambegaonkar
Author : Ravindra Ambegaonkar
August 18, 2021
2 Minutes Read
  
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    Key Takeaways :

    • If you have been thinking about getting a business loan to fund your construction project, you will need to apply through a lender or broker.  Put your facts and figures together first as you will be asked for this during the meeting, and there are several things the lender will need to know before they can agree to finance your project.

    • A lender can’t agree to finance your project unless they know how much money you want to borrow.  Work out how much you will need to buy the land, the cost of materials and labor, and any ad-hoc expenses you expect to incur.

    • You will be asked to produce this figure so that the lender can assess the risk using the end figure to see how much profit you are likely to make if you complete the project.  Hopefully, you will be able to show a large profit for all your hard work.

    If you have been thinking about getting a business loan to fund your construction project, you will need to apply through a lender or broker.  Put your facts and figures together first as you will be asked for this during the meeting, and there are several things the lender will need to know before they can agree to finance your project. These are some of the questions that will be asked to help a lender underwrite your construction business loan.

    Budget

    This is the starting point.  A lender can’t agree to finance your project unless they know how much money you want to borrow.  Work out how much you will need to buy the land, the cost of materials and labor, and any ad-hoc expenses you expect to incur.

    Drawdown Facilities

    One of the benefits of business loans for construction companies is that they can use a drawdown facility.  This means that rather than needing all the money upfront, you can ask for it as each stage of the project is completed.  Not needing all the money at once can save you a lot of interest, so a lender will need to know how you want to structure the loan.

    Approval and Consent

    A lender will not offer you finance if you don’t have permission for the construction project to go ahead.  Make sure you obtain this in advance and can show proof of it when you are asked.  Otherwise, your finance application will be turned down.

    Term

    A lender will need to know how long you want to borrow the money over and at what stage you want to make payments.  Some lenders will need you to repay them monthly, others will agree to let you pay frequent lump sums instead. 

    Land and Site Value

    You will need to work out a land and site value for your project and the lender may need an independent survey too.  This will show them how much the land and value are worth, which in turn will let them work out the risk they are taking by lending you the money.  They can repossess these assets if you aren’t able to keep up with the repayments. 

    Building Costs

    Building costs will reduce the end profit you make, so a lender will pay close attention to this figure.  Make sure you have worked out the math to the last nuts and bolts before you submit it, otherwise the decision might not go in your favor. 

    End Valuation

    You will be asked to produce this figure so that the lender can assess the risk using the end figure to see how much profit you are likely to make if you complete the project.  Hopefully, you will be able to show a large profit for all your hard work.

    Your lender may want you to produce additional information depending on the type of construction project you are undertaking, but these are the main questions they will want to ask.  Remember that they are lending you their money and will need to make sure that your project is worth the risk.  Good luck.

    Tags MEP installations | construction equipment | construction loan | Business Finances

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