The U.S. construction industry has more than 6 million employees, making the multi-billion dollar business one of the most important industries in the country. Small construction companies or contracting businesses tend to experience challenges with their finances at some point. The major problem here is how to access the funding options available to businesses in the industry.
It is worth noting that there are quite a number of funding options available to businesses in the construction industry, with construction loans being one of the very popular ones. Construction loans are bank-issued short-term financing, created for the specific purpose of financing a new home or other real estate project. Such loans are granted to individual homeowners, contractors, and small business owners to finance their construction project.
Some of the issues that intending borrowers should consider in addition to construction loans interest rate are briefly highlighted as follows:
Type of Construction: Individuals and small business owners looking for funding to build a new home are better with short-term construction loan. It should be noted that construction loans have high-interest rates owing to the risk involved.
Big Down Payment: Construction loans generally require a large down payment of around 20-25% of the total cost of the project.
Thorough application process: Applying for a construction loan often involves a relatively long process of providing the details of the project, including like the total amount of funding required, details about the builder, a detailed project timeline, the floor plans or construction drawings, the cost of materials, and the cost of labor.
Types of construction loans
Construction Mortgage Loans: are granted to finance the purchase of land, or construction of a home on land you already own. These loans are usually structured to allow lenders to pay a percentage of the completion costs and the builder or developer to pay the rest.
Construction-to-Permanent Loans: is otherwise known as the CPloan, construction-to-permanent loans are another option for financing the building of a new home. CPloans offer some extra convenience to borrowers by combining two types of loans in a single process.
Commercial Construction Loans: These loans are for relatively big constructions like a multi-family home or apartment building, high-rise, multi-unit retail center, commercial office building.