New construction projects are popping up everywhere. Some are personal projects, and a construction company handles others. Depending on the size of the project, you most likely will need to secure financing.
Obtaining funding isn’t always as simple as it seems. If you have cash on hand, you may not want to tie it up for months or years on a construction project. This is where financing construction projects come into play.
Are you looking for ways to fund your next project? Keep reading for a simple guide on how to raise money for a construction project.
Getting Started with Financing Construction Projects
Before seeking financing options for construction projects, it’s important to have a clear picture of all costs. Make a list that includes the following costs:
- Architect fees
- Craftsmen and laborers
- Interest on loan
These are a baseline for expenses. Depending on the type of building you’re constructing, there are other specialty expenses to consider. Click here to see the types of structures you can build with the right financing.
Take Out a Construction Loan
Apply for a construction loan. FHA construction loans are backed by the government and typically have less stringent requirements than other lenders.
Once you move outside of FHA loans, you may find criteria such as down payments of 20 – 30%, higher interest rates, and shorter repayment periods.
Traditional banks will look at your credit history when making their determinations. Non-traditional banks will not, which is why they may have more stringent terms. Regardless of the type of construction loan, the property and structure are used as collateral.
Choose a Private Investor
Private investors are great financing options for construction projects. You can put together a professional proposal and do a presentation for people interested in investing.
These individuals can include family, friends, and other people capable of being investors. Ensure your proposal explains how the money will get repaid and when it will get repaid.
Honor your commitment the same as you would a bank. If you do good on this project, people are more likely to provide future support.
Hard Money Lender
A hard money lender is similar to private investors. However, their primary goal is to invest in construction projects. Like non-traditional lenders, their rates are high, and repayment periods are not as flexible.
Start a Capital Campaign
A capital campaign is another unique way to raise funds for a construction project. In modern technology, there are apps similar to GoFundMe to assist builders in reaching their goals. The fundraising isn’t ongoing but has a set goal.
Ready, Set, Start Building
Financing construction projects are the best route to take. You aren’t tying up your personal money in the event there are delays in finishing the job. Financing also helps with building credit and your professional reputation.
We hope you found this article useful and you’re on the right path to starting your construction product. Please continue to browse our site for more great tips and trends topics.