Am I eligible for a construction loan?

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To qualify for a construction loan in the UK, you need to meet specific requirements. Many lenders will ask you to show proof you have a minimum 20% down payment, and your credit rating must be moderately high at least.

Construction loans are usually tougher to obtain for first-time construction firm owners than those with past records of obtaining such loans.

There are several considerations you should put in mind to ascertain whether you are eligible or not for a construction loan;

Do You Possess the Experience?

The first thing potential lenders want to examine in your construction loan application is whether you possess the experience and understand the costs involved in the development of your project.

They want to see if you can be trusted when it comes to implementing cost control measures throughout the duration of project execution.

Inexperience project developers in the UK commonly underestimate or overestimate the overall costs of project planning. It is the complexities behind each loan proposal which exposes how most construction finance companies are reluctant in considering loan applicants who approach them directly.

As a matter of fact, most construction loan lenders will only consider loan applications that have been examined and packaged by experienced brokers.

As a first-time construction loan applicant, you cannot package your loan application by yourself, even if you have accurate cost estimations for your project timeline. The only way you can navigate through and survive the obstacle of the shortage of experience is to approach a broker to prepare your loan application.

Do You Possess the Down Payment?

Many lenders including banks in the UK will require a minimum of 20% down payment for a construction loan. Some of the lenders will require as much as 25% down payment. The down payment is an important way to show that the loan applicant has invested in the project and wouldn’t walk away when something goes wrong.

Making a down payment will protect the lender or bank from financial issues just in case the construction project doesn’t worth the expected value.

Was the Construction Work Estimated by an Appraiser?

If your construction project was not evaluated by an appraisal, the bank or lender may think that you made guesswork instead of proper evaluation of the project. Though it can be difficult to appraise a project that is not already in existence, the loan giver must have your appraisal especially on the specifications of the project. The appraisal of your project will be compared to similar construction projects within similar locations, similar sizes, and features. The lender will only consider the appraiser’s specification to evaluate the risk of offering you a loan. For this reason, you may not qualify for a construction loan if your project has not been appraised.

Do You Have Detailed Descriptions?

Without a detail description of your construction project, you do not qualify for a construction loan in the UK. You will have to provide a list of construction details that include the floor plans, the timeline for each completion stage of your anticipated project, the cost and profit estimations for each stage of the project, Inventory of materials that will be needed for the completion of the project, names, contacts and other vital information on suppliers and sub-contractors for the project. Despite all this information, you will still have to meet all other requirements set by the lender before your loan application will be approved. Make sure you consider the likely risks of your project site when planning to apply for a loan.

Do You Have a Reputable Licensed Builder?

In order to qualify for a construction loan, virtually all kinds of lenders must see proof of the involvement of a professionally licensed builder. Unless you plan to be your own general contractor or you intend completing the construction project with your own hands, you will have to include the names and addresses of the builders who will be involved in the project. In addition to this, you need to provide evidence of the past projects handled by the builder alongside their profit and loss reports or financial statements.

The Proof of Your Ability to Repay the Loan

If you have taken loans in the past and repaid on time, then you should qualify for a new construction loan based on your ability to provide evidence of your past and current loan repayment records. Your lender will surely want to see your proof of income and credit card reports.

It could be a lot easier to fulfill this requirement if you are applying for a loan in the same bank you have been doing business within the past few years. The lender will consider your profit and loss financial statements in addition to your loan payment records to decide your qualification for a construction loan.

Conclusion

The issue of the construction loan application can be very complex, time-consuming and tedious to handle personally. Lenders want to lend money to individuals or construction firms with the aim of making the best returns on their investment and within the shortest period of time.

It is also important to note that lenders want to do business with the list possible risks, hence you may meet the requirements set for loan approval but if the risks on your project are too high, then the lender may turn you down. For instance, construction projects along an active hurricane region may be a very high-risk business for a bank, and for that reason, only the loan application may be rejected.

For most construction lending companies or individuals, approving a loan to first -timers is like taking a gamble on new staff. For this reason, you need to prove to them beyond a reasonable doubt that you can complete a project within the time frame, and with the available resources with little or no risk involved.

It is important to note that an existing worker insurance policy could make a huge difference in construction loan approval because such insurance cover will reduce the risks of financial loss in any construction project.

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