{"id":1631,"date":"2021-06-26T14:54:09","date_gmt":"2021-06-26T09:24:09","guid":{"rendered":"https:\/\/www.extramilefinance.uk\/blog\/?p=1631"},"modified":"2021-06-26T14:54:13","modified_gmt":"2021-06-26T09:24:13","slug":"the-complete-guide-to-construction-finance","status":"publish","type":"post","link":"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/","title":{"rendered":"The Complete Guide to Construction Finance"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_52 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a21adaa9df83\"><span class=\"\"><span style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a21adaa9df83\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#What_is_construction_finance\" title=\"What is construction finance?\">What is construction finance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#How_does_construction_finance_work\" title=\"How does construction finance work?\">How does construction finance work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#What_are_the_alternatives_for_construction_finance\" title=\"What are the alternatives for construction finance?\">What are the alternatives for construction finance?<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Asset_financing\" title=\"Asset\nfinancing\">Asset\nfinancing<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Advantages_of_asset_financing\" title=\"Advantages\nof asset financing:\">Advantages\nof asset financing:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Drawbacks_of_asset_financing\" title=\"Drawbacks of\nasset financing:\">Drawbacks of\nasset financing:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Long_term_unsecured_loans\" title=\"Long term\nunsecured loans\">Long term\nunsecured loans<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Benefits_of_unsecured_loans\" title=\"Benefits of\nunsecured loans\">Benefits of\nunsecured loans<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Drawbacks_of_unsecured_loans\" title=\"Drawbacks of\nunsecured loans\">Drawbacks of\nunsecured loans<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Bridging_loans\" title=\"Bridging\nloans\">Bridging\nloans<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Advantages_of_bridging_loans\" title=\"Advantages\nof bridging loans\">Advantages\nof bridging loans<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Drawbacks_of_bridging_loans\" title=\"Drawbacks of\nbridging loans\">Drawbacks of\nbridging loans<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Invoice_financing\" title=\"Invoice\nfinancing\">Invoice\nfinancing<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Advantages_of_invoice_financing\" title=\"Advantages\nof invoice financing\">Advantages\nof invoice financing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#Drawbacks_of_invoice_financing\" title=\"Drawbacks of\ninvoice financing\">Drawbacks of\ninvoice financing<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#How_to_improve_your_chances_for_approval\" title=\"How to improve your chances for approval\">How to improve your chances for approval<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/www.extramilefinance.uk\/blog\/the-complete-guide-to-construction-finance\/#The_final_word\" title=\"The final word\">The final word<\/a><\/li><\/ul><\/nav><\/div>\n\n<p>Construction financing is not that easy. You earn on a\nstaged basis, which means your earnings depend on the completion stage of the\nproject. <\/p>\n\n\n\n<p>While you need a constant cash injection to maintain the regular supply of inputs and materials, including the monthly salary for your laborers, it can be quite challenging to hit the ground running. This is why most construction firms rely on financing options. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_construction_finance\"><\/span>What is construction finance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Construction finance is a type of funding source that\nallows you to fund your building projects when you do not have enough money. <\/p>\n\n\n\n<p>These short-term financing options can help you take\non larger projects. With the help of financing, you can handle multiple\nprojects and make a lot of money. <\/p>\n\n\n\n<p>These financing options are generally suitable when\nyou are planning to start from scratch. If you are looking to finance a\nbuilding project about to complete, you should look for other alternatives like\ncommercial property finance. They will be more suitable than construction\nfinances.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_does_construction_finance_work\"><\/span>How does construction finance work?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Construction finance is a short-term loan and hence the repayment period extends over a period of one year. These loans aim at underdeveloped funding property or building structures.<\/p>\n\n\n\n<p>\u00a0Whether you borrow money from an online <strong><a href=\"https:\/\/www.extramilefinance.uk\/\">loan lender<\/a><\/strong> or a banking institution, the loan size will be determined based on the estimated value of the developed property or building that fulfills the purpose of collateral. <\/p>\n\n\n\n<p>These loans are secured loans, which is why they will\nlikely have affordable interest rates. As the construction work completes, the\nproperty is sold so you can repay the loan. <\/p>\n\n\n\n<p>When you apply for the construction loan, funds are\nreleased in stages, for instance, at the time of completion of foundation and\nthen at the time of completion of framing. <\/p>\n\n\n\n<p>Make sure that you have got to know when the stage is\nmarked as complete so that the money can be disbursed. You can negotiate the\ndisbursal amount for each stage depending on your requirement. <\/p>\n\n\n\n<p>At the time of taking out a construction loan, make\nsure that you have already calculated the estimated total cost. The interest\nrates for these loans vary from project to project. <\/p>\n\n\n\n<p>Considering the risk on the lender&#8217;s part, they may\ndecide to lend you money up to 70% of the cost of the estimated gross\ndevelopment value. <\/p>\n\n\n\n<p>If you have a very good credit history and a reputed\nbuilder, the interest rates for construction loans will be a few points up the\nlowest rates for <strong><a href=\"https:\/\/www.extramilefinance.uk\/loans\/secured.html\">secured business\nloans<\/a><\/strong>. <\/p>\n\n\n\n<p>It means the interest rates for construction loans\nwill likely be higher. There are several types of fees that a lender can charge\nyou while processing the loan. <\/p>\n\n\n\n<p>This can surely add up the cost of the debt. It is\nalways suggested that you should look around and research properly, so you\nchoose the most suitable deal. <\/p>\n\n\n\n<p>However, not all direct lenders sign off on such\nloans. This is because they involve a significant risk on the lender&#8217;s part,\nbut you do not need to worry because there are various alternatives.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_alternatives_for_construction_finance\"><\/span>What are the alternatives for construction finance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here are the most dominant alternatives for financing\nyour construction projects.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Asset_financing\"><\/span><strong>Asset\nfinancing<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Asset financing is a great way to fund the\nconstruction project that allows you to borrow money against your assets and\ninventory stated in your balance sheet. <\/p>\n\n\n\n<p>It can help you raise funds as working capital for\nyour business. All your assets, like equipment, will be served as collateral. <\/p>\n\n\n\n<p>In case of a default, the lender can liquidate these\nassets to recover their money. These loans are ideal if you need money to fund\nthe raw material to complete the construction project. <\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_asset_financing\"><\/span><strong>Advantages\nof asset financing:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>You can quickly obtain money using your balance sheet\nassets. The lender will lend you money based on the valuation of your help.<\/li><li>Fixed payments can help you manage your cash flow more\nsmartly.<\/li><li>You can leverage fixed interest rates.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Drawbacks_of_asset_financing\"><\/span><strong>Drawbacks of\nasset financing:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>You can lose your balance sheet assets in case of failure of repayment.<\/li><li>You may end up borrowing little money due to the undervaluation of your assets.<\/li><li>It is not effective for long-term purposes. <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Long_term_unsecured_loans\"><\/span><strong>Long term\nunsecured loans<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>If you need a large amount of money for your\nconstruction project, you can seek long term unsecured loans. The repayment\nlength of these loans can be up to three to five years, depending on the\nborrowing amount. <\/p>\n\n\n\n<p>Note that these loans are unsecured, and hence they will carry a high interest rate. However, long term unsecured loans with bad credit ratings can be more expensive than those with a good credit rating. <\/p>\n\n\n\n<p>However, getting approval for these loans is still not\nthat easy. Because of the nature of the loan, it increases the risk on the part\nof the lender. It is why you should consider seeking <strong><a href=\"https:\/\/www.extramilefinance.uk\/loans\/secured.html\">secured\nloans against property<\/a><\/strong>. <\/p>\n\n\n\n<p>If the debt is secured against the collateral, it\nassures the lender that they have some scope to recoup the debt in case of a\ndefault. <\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Benefits_of_unsecured_loans\"><\/span><strong>Benefits of\nunsecured loans<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>You can easily apply for these loans. All you need to\ndo is to put in the application online. <\/li><li>You do not have to be afraid of losing any of your\nassets because they are unsecured.<\/li><li>They are more affordable than construction loans.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Drawbacks_of_unsecured_loans\"><\/span><strong>Drawbacks of\nunsecured loans<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>The lender will likely disapprove of your loan\napplication in case you have a bad credit rating.<\/li><li>You will probably end up paying a high amount of money\nin interest because of a lack of security.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Bridging_loans\"><\/span><strong>Bridging\nloans<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Bridging loans can be an ideal solution for your large construction projects when you do not have sufficient money to get them off the ground, and you are to wait to raise your first invoice. <\/p>\n\n\n\n<p>In other words, you can use these loans to fill the gap before long-term funding can be arranged. These loans are secured loans because of the collateral in the form of equipment, property, or land. <\/p>\n\n\n\n<p>Unlike secured loans, bridging loans can provide you\nwith an instant supply of cash. The entire processing may finish within 48\nhours, which is a very short period when it comes to borrowing a large amount\nof money. <\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_bridging_loans\"><\/span><strong>Advantages\nof bridging loans<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>Bridging loans are short-term loans, so they cannot\ntrouble you even in case of slightly tight cash flow. <\/li><li>These loans are convertible. If you have taken on it\nto buy property, you can get it converted into a mortgage. <\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Drawbacks_of_bridging_loans\"><\/span><strong>Drawbacks of\nbridging loans<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>A default can attract very high penalties and interest payments. Sometimes they can be more expensive than <strong><a href=\"https:\/\/www.extramilefinance.uk\/loans\/bad-credit-loans\/unsecured.html\">adverse unsecured loans<\/a><\/strong> in case of a default. <\/li><li>You may lose your collateral if you fail to repay the debt. <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Invoice_financing\"><\/span><strong>Invoice\nfinancing<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Invoice financing is the most convenient way to borrow money against the raised invoices. This is an ideal solution when there is a significant gap like 30, 60, or 90 days to get paid your invoice. In the meantime, it can be very tricky to meet all expenses to keep the ball rolling. <\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_invoice_financing\"><\/span><strong>Advantages\nof invoice financing<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>This can allow you to borrow up to 95% of your\ninvoice.<\/li><li>You can get money quickly, probably the same day. <\/li><li>Your invoice itself serves as collateral, so you do\nnot need to secure any additional assets.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Drawbacks_of_invoice_financing\"><\/span><strong>Drawbacks of\ninvoice financing<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>You cannot access the full value of the invoice. <\/li><li>You will not have control over collection from your\nclients because the lender will take over.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_improve_your_chances_for_approval\"><\/span>How to improve your chances for approval<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Regardless of the financing option you are considering\nfor your construction project, here is how you can improve your chances of\napproval:<\/p>\n\n\n\n<ul><li>Make sure that you have a good credit rating. No\nlender will sign off on your application in case of a bad credit rating, and if\nso, you will likely end up paying higher interest.<\/li><li>You will have to show your steady growth while\nborrowing money for a construction project. You will have to prove that you can\ngenerate enough profits to pay back the loan. <\/li><li>If you have a poor credit rating, you should arrange a\nguarantor to mitigate the lender&#8217;s risk. This can help you have a loan signed\noff on. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_final_word\"><\/span>The final word<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are various ways to fund your construction\nprojects. Before you put in the application, make sure that the funding source\nsuits your needs and budget. If you fail to settle your debt, you will suffer\nfrom a substantial financial loss. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Construction financing is not that easy. You earn on a staged basis, which means your earnings depend on the completion [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1632,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5],"tags":[219],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/posts\/1631"}],"collection":[{"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/comments?post=1631"}],"version-history":[{"count":1,"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/posts\/1631\/revisions"}],"predecessor-version":[{"id":1633,"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/posts\/1631\/revisions\/1633"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/media\/1632"}],"wp:attachment":[{"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/media?parent=1631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/categories?post=1631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.extramilefinance.uk\/blog\/wp-json\/wp\/v2\/tags?post=1631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}