Financing business premises or a new commercial development is a process that usually involves large monetary figures and extensive forward planning. Like any property finance arrangement, it is expensive, not least because it involves substantial periphery administrative costs besides the property's actual price. It is also the longest term commitment to debt that businesspeople make, spanning years or decades. However, where the financed structure does not yet exist, there are additional factors to be considered. Commercial construction loans are therefore not the same as conventional credit purchase agreements.
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 it has been determined that the project makes sense financially, the loan contract's terms and timetable are drawn up, with input from both parties. A loan financing a building operation has more parts to it than an ordinary real estate loan because the financed structure does not exist yet. The contract's initial phase merely covers the building of the structure. Once the structure is finished, the rest of the agreement covers the property's entire purchase price. The contract's two sections are joined by what is termed a "mini-perm" agreement.
In approving the agreement, the lender needs to assess the building contractor's history, capabilities and industry reputation. There also needs to be a verification of the contract price in relation to other similar projects, and this may require a detailed analysis of how the borrower or contractor intends to spend the available money.
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.
Banks and other institutions do not easily approve requests for money. People approaching them should therefore provide a detailed business plan, inclusive of solid market information. If the lender decides that the project is not suitable for the current market, they are not likely to approve the borrower's request.
New construction is always an exciting event and is very important in the economy's growth. Approaching these loans in an effective, professional fashion makes the process much easier for all parties concerned and allows for smoother business.
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 it has been determined that the project makes sense financially, the loan contract's terms and timetable are drawn up, with input from both parties. A loan financing a building operation has more parts to it than an ordinary real estate loan because the financed structure does not exist yet. The contract's initial phase merely covers the building of the structure. Once the structure is finished, the rest of the agreement covers the property's entire purchase price. The contract's two sections are joined by what is termed a "mini-perm" agreement.
In approving the agreement, the lender needs to assess the building contractor's history, capabilities and industry reputation. There also needs to be a verification of the contract price in relation to other similar projects, and this may require a detailed analysis of how the borrower or contractor intends to spend the available money.
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.
Banks and other institutions do not easily approve requests for money. People approaching them should therefore provide a detailed business plan, inclusive of solid market information. If the lender decides that the project is not suitable for the current market, they are not likely to approve the borrower's request.
New construction is always an exciting event and is very important in the economy's growth. Approaching these loans in an effective, professional fashion makes the process much easier for all parties concerned and allows for smoother business.
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 Bridge Finance Loans | Atlanta, GA He suggests you check out the website iFund International
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