Approaching lenders for financing can be stressful. Here are five useful tips that may help make it a little easier.
- Do some research ahead of time. Try your best to find a local banker or lender who makes construction loans and understands the business of residential home construction. At the very least, you should look for one that is flexible and open to learning about the industry.
- Establish credibility early on. There is great value in establishing confidence and trust. Provide the bank/lender with your resume and company history, and make sure to demonstrate past successes. Provide references from satisfied customers and subcontractors with whom you have positive relationships.
- Come prepared. Before negotiating with a bank or lender, put together a thorough and complete packet of information about your business, including: up-to-date and easy-to-understand financials, a marketing plan for each project that requires financing, marketing collateral material and an accurate estimate of the project cost(s).
- Negotiate from a position of strength. Knowledge is power, so it’s beneficial to learn about local terms and conditions in the banking community. Know the loan-to-value ratios of your request, as well as the ranges acceptable to your bank. As a helpful guide on financing home construction projects, read Survive and Thrive in Building.
- Understand your banker’s needs. Know what regulations, requirements and internal management issues affect your banker. How much power or authority does the loan officer maintain? Is there a loan committee that makes decisions or a series of management signoffs? By understanding these needs, you will have a far better chance of success.
Negotiating with a bank or lender can be intimidating. Keep in mind that your banker has a job to do as well. Careful and diligent preparation can help ease the process, and foster positive outcomes.