As a residential builder, you know how difficult it is to construct a new property. You have to develop the plans, obtain permits, hire contractors and subcontractors, order materials and so much more.
Yet, before you can even lay the foundation for a new construction project, you have to go through another challenging and time-consuming process: securing a loan for your construction project.
Unfortunately, securing loans from a traditional bank or financial institution is often difficult and disappointing for residential builders like yourself.
Why?
Below we’ll highlight three of the most common reasons builders face difficulty with securing bank loans for their new projects.
Lack Of Collateral
One of the main reasons many banks do not offer loans to builders is because they lack sufficient collateral.
Unlike other small businesses and corporations, residential builders don’t have a wealth of assets that can be used for collateral-based loans. Banks are more likely to loan these businesses their requested funds because they can use their company vehicles, office equipment, product inventory, and, in some cases, their business property if they own their building.
While these businesses have all of these various assets, most builders do not. They often work out of their own home so there’s no need for a physical office building. Since they employ subcontractors and lease the necessary equipment to complete their projects, they don’t have these additional resources as collateral.
In most cases, builders can only offer their own home as collateral. And the value of their home does not sufficiently cover the amount of a construction loan. Due to this lack of collateral, banks and other traditional lenders are hesitant to offer loans to these builders.
Lack Of Back Office Experience
In addition to possessing insufficient collateral, builders often have a hard time securing construction loans because of their lack of back office experience.
Running an efficient and effective back office requires the builder to properly manage the finances of their various builds, pay subcontractors and vendor invoices on time to prevent construction delays, develop and review progress reports, and so much more.
While large construction firms employ multiple staff members to oversee these responsibilities, builders do not have such luxuries. They have to manage their projects on their own. That being the case, it’s easy for them to become overwhelmed by the responsibilities – and potentially miss paying an invoice, miss deadlines and exceed their budget.
If the builder is new to the industry, their experiences with managing a construction project is minimal. This means that they are at greater risk of making multiple mistakes more frequently.
Banks and other financial institutions view a builder’s back-office expertise as an essential factor for their success. From their viewpoint, large construction companies with multiple full-time office managers are adept at successfully managing their projects without any incidents that would impact their loan.
Whereas most residential builders lack back-office experience or are managing their projects on their own. Due to these factors, banks and other traditional lenders may consider these builders unable to successfully manage their projects and complete their builds on time and within budget. Taking these things into account, they’re less likely to approve a loan to these builders.
Economic Downturns And Construction Industry Trends
Finally, a bank’s decision may not be based on lack of collateral or business. In some cases, the current economy and/or construction industry trends may impact loan applications.
These traditional lenders play close and careful attention to the economy and the current trends in the construction industry and real estate market. In the event of an economic downturn and/or unfavorable construction and real estate trends, they tend not to issue any loans for new builds.
When these situations occur, they’re major setbacks for builders who need to secure funding for their projects.
The Solution For Securing Loans in Building & Construction
Taking the above factors into account, it may seem like it’s almost impossible for individual builders to secure loans for their new builds. While it is often incredibly difficult for builders to get loans from traditional construction lenders, there is an alternative to these outlets: Snap.Build!
Our company is changing the game for residential builders. With our simple, streamlined process, builders can quickly and easily secure non-recourse loans to fund their current and future construction projects regardless of industry and market trends. With these types of loans, qualified builders who lack collateral can receive the funding they need to successfully complete their projects.
Additionally, our user-friendly online platform provides builders project management tools to run their back office with ease. Even if they lack time or experience, builders can use these built-in tools to ensure that their invoices are paid on time, track project progress in real time and keep their project on time and on budget. We provide quick answers to frequently asked questions about land financing, builder loans, and capital lending.
Whether you’re an experienced professional or a new residential builder whose project financing has been negatively impacted by these three factors, it’s time to choose Snap.Build.
Contact us today to learn how we can help you secure the financing you need to build your current and future construction projects!