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.
One of the most important issues is that a commercial property is intended to generate income. This means that the credit provider (which is usually a bank) needs to assess whether the expected income is commensurate with the amount of credit granted. Market research also needs to determine whether the property's desired use represents a satisfactory revenue potential.
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.
In approving the agreement, the lender needs to assess the building contractor's history, capabilities and industry reputation. There also needs to be a verification of the contract price in relation to other similar projects, and this may require a detailed analysis of how the borrower or contractor intends to spend the available money.
In the absence of a standing structure, the lender also requires exhaustive technical information on the project, such as building specifications, the duration of the work, materials to be used, and all pertinent details that may be of use in approving the loan application.
It is sometimes extremely hard to gain approval from a bank or other institution for credit. Project initiators should therefore put together an informative business strategy which is substantiated by market research and data. If the project is seen as incompatible with prevailing market conditions the entire loan application may be rejected by bank analysts for that reason.
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.
One of the most important issues is that a commercial property is intended to generate income. This means that the credit provider (which is usually a bank) needs to assess whether the expected income is commensurate with the amount of credit granted. Market research also needs to determine whether the property's desired use represents a satisfactory revenue potential.
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.
In approving the agreement, the lender needs to assess the building contractor's history, capabilities and industry reputation. There also needs to be a verification of the contract price in relation to other similar projects, and this may require a detailed analysis of how the borrower or contractor intends to spend the available money.
In the absence of a standing structure, the lender also requires exhaustive technical information on the project, such as building specifications, the duration of the work, materials to be used, and all pertinent details that may be of use in approving the loan application.
It is sometimes extremely hard to gain approval from a bank or other institution for credit. Project initiators should therefore put together an informative business strategy which is substantiated by market research and data. If the project is seen as incompatible with prevailing market conditions the entire loan application may be rejected by bank analysts for that reason.
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 Finance Broker Company | Atlanta, GA He suggests you check out the website iFund International
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