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 primary purpose of a commercial property is the production of revenue. Because this is so, the loan provider, often a commercial bank, has to determine if the property's projected revenue is sufficient to meet the loan's repayment structure or is suitably in proportion to the loan's size. A business analysis also needs to be instituted to satisfy the lender that the property's proposed utilization will result in the required 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.
Before approving any such loan, the credit provider should examine the building contractor's track record, professional competencies and industry status. The contract price also needs to be assessed in comparison with contemporary projects of a similar magnitude in order to see if it is competitive, and to this end project management should provide a comprehensive statement of the proposed construction's costs, thereby justifying the requested loan amount.
Because the structure does not exist yet, potential lenders cannot make an inspection, so the full technical data of the project should be made available to them. Time frames, engineering specifications, estimates and any other salient information should be presented.
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 primary purpose of a commercial property is the production of revenue. Because this is so, the loan provider, often a commercial bank, has to determine if the property's projected revenue is sufficient to meet the loan's repayment structure or is suitably in proportion to the loan's size. A business analysis also needs to be instituted to satisfy the lender that the property's proposed utilization will result in the required 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.
Before approving any such loan, the credit provider should examine the building contractor's track record, professional competencies and industry status. The contract price also needs to be assessed in comparison with contemporary projects of a similar magnitude in order to see if it is competitive, and to this end project management should provide a comprehensive statement of the proposed construction's costs, thereby justifying the requested loan amount.
Because the structure does not exist yet, potential lenders cannot make an inspection, so the full technical data of the project should be made available to them. Time frames, engineering specifications, estimates and any other salient information should be presented.
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 Loans Financing | Atlanta, GA He suggests you check out the website iFund International
No comments:
Post a Comment