Based on the 2020 data of ACG, the construction industry in the United States comprises around 700,000 employers with 7 million employees. In the same year, the construction business spent about 975 billion dollars. We expect to see a 1.53 trillion dollar increase in the year 2021.
Indeed, the construction industry is a booming business. Yet, starting a construction business is not a simple walk in the park. You will need a huge capital to keep going.
If you are an owner of a construction business, you have experienced both the ups and the downs in handling projects. Whether your business is small or big, there is always excitement in the marketplace.
But whatever happens, you should always find ways to finance your construction project. Understanding the value of having financial stability is imperative to ensure the completion of your construction project.
The most common way to finance your construction project is by securing a loan. Generally, a construction loan is interest-based. That means the debtor only pays the accumulated interest and not the loan’s total amount while the project is pending its completion.
However, there are different kinds of construction loans. In this blog, we will introduce a few useful financing solutions.
Special Construction Loan
A Special Construction Loan is sometimes called a self-build loan. A self-build loan is the most recommended type of loan to finance the initiation of your construction project. It is a short-term financing solution for both big and small projects.
The funds provided in this loan type are specific for the project costs. It is not a mere estimate of the construction project’s value. The funds are released on an installment basis. It is usually disbursed on every phase of the construction project.
This type of loan places collateral as a security for the debt. Usually, the collateral takes the form of a real estate mortgage. Creditors prefer this loan type because of its security. For instance, a commercial or residential property may be given as a collateral by the debtor.
The rate of interest is also lower for secured loans. So long as the debtor can show his financial capability to repay the loan, project funding is speedy and accessible.
Construction-to-permanent loans or CP loans are more convenient than other loan types. While the construction is ongoing, the debtor is only required to pay the interest. By the end of the construction project, a CP loan is converted into a mortgage where the debtor can pay the interest and the principal for 15 to 30 years.
Commercial Construction Loan
This type of loan is applicable for building an apartment or a high-rise condominium project. With low risk on the creditor’s part, the debtor covers almost 90% of the project’s cost. If you are into this kind of construction project, be sure to prepare your money to finance your project.
If you’re building a senior living facility, it would be helpful to find out how much it costs to build a senior housing project.