5 Proven Ways to Finance Your Commercial Real Estate Project
Starting a commercial real estate project can be exciting for developers. However, getting enough financing for the project can be challenging as these projects can be costly. In this blog post, we’ll talk about different financing options for commercial real estate projects.
1. Conventional Bank Loans
Traditional bank loans are one of the most common options for project financing. You can go to banks or financial companies to ask for loans. These loans are given based on credit health, business plan, and the value of your collateral.
These loans usually have good interest rates, long repayment times, and regular payment plans. This makes them a good option for many contractors.
However, getting these loans has become harder. In the past, a good plan and decent credit were enough. Now, you need a good plan and excellent credit. If your credit score is below 700, your application will likely be rejected.
You will also need collateral, which means your equipment will be tied to the project. Many banks are uncomfortable with the construction industry because it can be unpredictable.
Banks like to be paid regularly and on time, which can be hard if you don't have enough savings. Traditional banks also do not accept contracts as collateral, so you must have enough other collateral to satisfy them.
2. Construction Loans
Construction loans are specifically for contractors for project payments. These loans are given out in stages, with money released in parts as the project hits certain milestones.
Construction loans often have higher interest rates than traditional loans, but they give contractors the money they need while building. Companies that provide construction loans are experts in this type of lending and will only release money if the project meets their progress standards.
3. Peer-to-Peer Lending
Peer-to-peer lending platforms offer a new way of financing for construction developers. These platforms connect developers with individual investors who want to fund their projects.
Peer-to-peer lending gives contractors more flexibility, easier application processes, and sometimes lower interest rates than traditional loans. This option is a personal favorite of my company.
4. Equipment Financing
Construction projects often need special equipment, which can be expensive. Equipment financing lets you borrow money to buy or lease the equipment you need for your projects. You can save your working capital while getting the required machines and tools.
5. Joint Venture Partnership
Another way of financing is by forming joint venture partnerships with contractors or investors. In these partnerships, the contractor provides their skills, workers, and equipment, while the partner provides the necessary funds. Joint ventures give contractors access to capital, share the risks, and offer potential profits.
This makes them an attractive option for big commercial real estate projects. Many experienced people in the industry highly recommend this option.
Want a professional to help you? Book our commercial real estate advisory call in Atlanta today.