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If you are starting construction on a new house or building, you are almost certainly going to need help in some form of general contractor business loan. Though the market for construction is not nearly as â€œhotâ€ as it used to be several years ago, the industry is still alive and kicking and it is important to know the fundamentals so that you can get the best financing as a general contractor.
Business loans for construction typically fall into the following most popular choices: 30 and 15 year fixed mortgages, one year adjustable rate mortgages, ARMs ranging from 3/1 to 10/1, and interest-only loans. There are a number of combinations in which these mortgages can be applied, all of which depend on your unique circumstances. It is important to know the market and the circumstances in which you are in so that you know which mortgage or mortgages you should use for your financing. You will then want to get pre-qualified for a loan. Loan products usually follow standard banking guidelines, and will need to see a high FICO score and a sound business proposal (construction loans are usually called â€œstory loansâ€ simply because they need to hear a good story.) You will then want to factor in some other things, such as interest reserves. Interest reserves refer to an amount that is equivalent to one year’s worth of interest that is added into the principal, and goes into effect after the house is built; because builders often have a lot on their plate, banks are willing to help them out by starting the monthly payments after the house is built.
You will want to spend some good time shopping around for your general contractor business loan. Shopping around is always useful when it comes to financing, and construction loan shopping is no exception.
Once you’ve found a good one, it is time to write your â€œstory.â€ You will need a detailed business proposal that explains who you are, what you’ve got, what you know, why you want to build a house, where you’re going to build it, and what you intend on doing with it. This is a very standard procedure that experienced GC’s are familiar with, and putting some extra effort into writing a good one is essential.
Knowing the steps to procuring a business loan is an important part to being able to build the home or building of your dreams!