How New Commercial Real Estate Investors Get Construction Loans

How New Commercial Real Estate Investors Get Construction Loans

New commercial real estate investors who are thinking about getting construction loans to finance their development projects may need to understand what is required in order to qualify for approval. Getting financing for a building plan is much more challenging than other types of investments. Additionally, most loans that finance construction projects must be taken out from a local bank instead of one of the many different alternative fund sources available now. Banks may have stricter requirements in order to get approved. Before you go to the bank, it’s important to keep a few things in mind to help increase your chances of landing a loan. You need to have a high credit score, a sufficient income and information that details your building project to convince the bank to invest in you.

High Credit Score

When you’re applying for business funding, and you lack years of experience in the industry, your personal credit report can sometimes be evaluated. For many new entrepreneurs, there isn’t enough of a business credit file in order to use that as a deciding factor for loan approval. If you want to be a contender for a bank loan, you need to carefully examine your credit history long before filing out your loan application. If your credit shows an excellent payment history, a great utilization of credit accounts and no problems, you have a better chance of getting a commercial loan.

Sufficient Income

Another thing that is important for new investors to show banks for construction loans is their ability to pay a loan back. What banks look for is that your income is high enough to cover all of your debts. Some banks have a formula that is used in order to calculate the ratio between income and debt. If you meet the requirements with your income, you may be in luck when it comes to your eligibility for borrowing.

Building Details

Additionally, because construction loans concern plans for a building project, your bank may also need to get paperwork from you that details everything about the scope of the job that you’re taking on. They may need things like blueprints, income projections and contractor estimates for the construction process. This can help the lender get a greater picture of what it is you’re trying to accomplish with your real estate project.

Being the new kid in the real estate investing industry is tough already. What’s even tougher for new investors is the part where they need to prove themselves to banks in order to get construction loans. Getting these important loans can help you carve out your reputation and put your first project on the map.