Securing finance to build a new structure or business complex is a process associated with large sums of money and considerable professional projections. Also, the property price itself is not the only cost involved, as there are the concomitant fees, commissions and administrative charges. Then there is also the fact that property finance transactions are generally long term in nature, perhaps twenty years in duration. However, in cases where the structure has not yet come into existence, the commercial construction loans that are used are more sophisticated than a mere contract of sale.
The most important use of a business property is the making of money. In light of this issue, the credit provider (typically a bank) is required to determine whether the property's income is going to be adequate to service the loan instalments or is germane to the amount of money lent. In turn, the lender also needs to be sure that the property's intended utilization is going to be able to secure that type of income.
Once the project's financial viability has been ascertained, the project management representatives and the bank (or other credit provider) need to negotiate the loan agreement's terms and itinerary. A construction loan usually has more than one stage, as the structure it finances comes into existence during the course of the agreement. The loan's first stage pays for the building process itself. Once that process is complete, and the structure is commercially employed, a much longer agreement commences which is used to cover the property's entire price. The bridging agreement between the two stages is called a mini-perm agreement.
Prior to the approval of a construction loan, the credit provider should take into account the contractor's past projects, technical abilities and industry stature. The quotation on the construction should also be juxtaposed with comparable projects to see how market-related it is. In support of the quotation, project management must supply a full report on all costs in the building work, so that the lender may understand how the loan amount has been arrived at.
It is impossible to inspect a non-existent building, so the borrower must also provide the lender with all the necessary technical details of the construction, such as the time frame, engineering information, quantity surveys and any other data affecting the credit assessment.
Persuading a lender such as a bank to grant credit is not easy. Potential borrowers should therefore be able to provide a comprehensive business plan, supported by relevant market information. A project that is too ambitious or that has little or no basis in the existing market environment is unlikely to attract approval from lenders.
A new construction project is always an exciting prospect and is a stimulant for growth in the local economy. The professional processing and finalization of financing arrangements makes the project leadership's job easier and saves time for both parties.
The most important use of a business property is the making of money. In light of this issue, the credit provider (typically a bank) is required to determine whether the property's income is going to be adequate to service the loan instalments or is germane to the amount of money lent. In turn, the lender also needs to be sure that the property's intended utilization is going to be able to secure that type of income.
Once the project's financial viability has been ascertained, the project management representatives and the bank (or other credit provider) need to negotiate the loan agreement's terms and itinerary. A construction loan usually has more than one stage, as the structure it finances comes into existence during the course of the agreement. The loan's first stage pays for the building process itself. Once that process is complete, and the structure is commercially employed, a much longer agreement commences which is used to cover the property's entire price. The bridging agreement between the two stages is called a mini-perm agreement.
Prior to the approval of a construction loan, the credit provider should take into account the contractor's past projects, technical abilities and industry stature. The quotation on the construction should also be juxtaposed with comparable projects to see how market-related it is. In support of the quotation, project management must supply a full report on all costs in the building work, so that the lender may understand how the loan amount has been arrived at.
It is impossible to inspect a non-existent building, so the borrower must also provide the lender with all the necessary technical details of the construction, such as the time frame, engineering information, quantity surveys and any other data affecting the credit assessment.
Persuading a lender such as a bank to grant credit is not easy. Potential borrowers should therefore be able to provide a comprehensive business plan, supported by relevant market information. A project that is too ambitious or that has little or no basis in the existing market environment is unlikely to attract approval from lenders.
A new construction project is always an exciting prospect and is a stimulant for growth in the local economy. The professional processing and finalization of financing arrangements makes the project leadership's job easier and saves time for both parties.
About the Author:
Tom G. Honeycutt is a full-time real estate entrepreneur in Atlanta, GA. Tom helps readers by providing practical and useful knowledge to better understand lending choices. If you are looking for Commercial Building | Financing Loans Atlanta, GA He suggests you check out the website iFund International
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