Basic Construction Business Practices
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Ins and Outs of Construction Financing
By David Seitter

If you are interested in working on a construction project, chances are you will need some sort of financing. Construction financing can be tricky, particularly because the costs associated with building a facility are generally high initially and the benefits are only realized once the facility has been in use for some time.

The good news is that there are many avenues available for acquiring construction financing. Whether you are financing a new custom built home, an office building or some other project, several options are generally available to construction owners/operators.
Corporate Equity – You might decide to finance a project directly using corporate equity, depending on the scope of the project and the costs associated with full construction. A person invests cash or other assets in return for equity in the company. If your company is well established, this might be a viable option.

Joint Ventures – Some local governments offer to work with local companies on new ventures including construction of headquarter offices. This may include low interest loans or property tax reductions.

Construction Loan – This is the most common type of financing, where a bank or financial institution finances the cost of a construction project. Generally when a building is finalized and construction is complete, the institution might request long term funding from other sources. A financing plan for a major institution might involve short and long term borrowing.

Since traditional financing through a bank or lending authority is the most common avenue pursued by most construction owners, we’ll review this form of traditional financing in greater detail.
The first step of the financing process involves locating and purchasing a building site. No banking authority will finance you if you haven’t determined the site you are going to build on. Be sure that at the very minimum you have secured a site to construct on which will allow permanent financing.

Next you’ll have to have construction plans ready to go that outline the project you will be working on. While doing this you should establish a conceptual design guideline for the project, which may include floor plans or exterior materials, landscaping and even parking depending on the project you are working on. You should also include a financial statement of projected expenses, blueprints of the project, a survey of the lot and any other information you might feel is applicable to the financing process.

Financing a construction project is much like financing a home. You will have to select a bank/lender and fill out an application.
You will also have to finalize any land use approvals, financial commitments, construction documents and obtain necessary permits and licenses in some cases before financing is approved.

Undoubtedly you will have to provide a wealth of information and be prepared to have your credentials and credit checked.