Q&A 10 – Financing your construction project
One of the most common questions our client asks is Alex, how do we secure the best funding for our project? And what are those types of funding?
The most common way to secure funding or one of them is the LOC, that’s a line of credit. That’s simply a line of credit that’s extended by any financial institution a bank based on your collateral and or your creditworthiness. This is an easy way to secure money that’s cash ready. You have your own checking account and you’re able to disperse funds to your builder or your construction professional with ease.
The second most common financing is the construction equity loan. This is a short-term loan used to finance the building of a new construction or remodel project. The great part about the construction equity loan is that you have three different parties overseeing it for triple redundancy. You’ve got the bank, you’ve got the owner and you’ve got your builder. All three need to sign off on the process for each draw in order to distribute funds, therefore it’s triple checked all around and you know exactly when and how the funds are being distributed. The construction equity loan is very common; you might run into some higher interest rates and some closing costs from time to time. But the advantage is you have a little bit of a big brother looking over your shoulder. That’s the third party or the bank that’s overseeing the facilitation of that loan. You’re going to want to find an approved builder for this loan. A builder specifically that is nominated by the bank to carry through with the construction of that loan. Given the common nature of construction equity loans, it’s important to find a builder that is well versed in this process. Schenkar Construction Design-Build has been building with construction equity loans in a variety of different pre-qualified banks for over (12) years. We’re very familiar with the process, its ease of construction, and we’re super pleased to work within these boundaries.
The third method of financing your construction project is simply with cash. You’re coming to the table with savings, you’re working directly with your contractor and builder, and you’re paying them direct out of a savings account of your choice. It’s a great way to control the disbursements of funds and it is a very common for a variety of different projects. We are happy to work with you on any level to talk to you about these different (3) methods.