Using spreadsheets instead of leveraging construction finance technology can cost real estate developers money and add risk to their projects. Commercial real estate developers should avoid using spreadsheets as their... Read More
Streamline Construction Loan Administration
Construction loan administration in commercial real estate requires precision. You must time draw requests perfectly to keep your commercial real estate project going, but slow manual processes can make loan administration difficult.
How Do We Simplify Construction Loans and Loan Administration?
Our software expedites loan administration and provides a central portal from which to manage all your developments.
Real-time data and valuable reports provide the insights you need to make the best business decisions. You and your team can focus on your projects rather than on tedious administrative tasks.
To better understand, we must discuss how construction loans work. No matter the project, all construction loans have the same lifecycle. There are typically three distinct stages:
Request and Approval of the Loan
To apply for financing, you must present a good business case and prove that the project is likely to succeed. To do so, you have to:
- Put up a percentage of the project cost: Banks mitigate their risks in construction lending by funding no more than a certain percentage of your project – often 80% of the total project hard costs. – In the most standard agreement, you need to have 20% upfront to prove to the bank that you are serious and have a significant stake in the development.
- A professional business plan: You must detail what you’ll build and where you’ll build it. The bank wants a business plan to show that you have done your research into the development’s viability.
- A contractor: The financiers will specify terms for contractors and how they manage construction loan administration. These are generally that they are licensed, insured, and experienced. Having a reputable contractor on board increases your chances of approval.
Your fund request must meet all the loan terms before approval. These could include time limits, milestone completion, or several other terms. The request typically undergoes intense scrutiny to ensure its validity.
A joke in the industry is that you must prove that you don’t need the money to get it. Things are not quite as difficult as that, but you must prove that you have financial sense and that the development’s finances are healthy.
This seemingly excessive degree of scrutiny is also beneficial to you as it protects against reckless lending.
It typically takes between 30 and 60 days for finance companies to process an application as they perform their due diligence. The interest you pay depends on how risky the bank believes the project is.
Previous evidence of successful investments in the industry is a solid motivating factor in your favor. Correctly prepared reports help because they show you invested time and effort.
Rabbet can streamline this process by providing professional investor reports for other projects. Our software records expenses and transactions if you require further financing after the building begins.
You will usually agree to a Draw Schedule with your bank. Through this draw process, they’ll pay out the funds when an independent inspector confirms that the project has reached preset milestones. They may refuse to pay out if they feel that progress is lacking.
Rabbet assists by making the fund disbursement within your company more straightforward. You can set up a simple authorization workflow to request and release money. This improves your construction loan administration and makes it harder for employees to misuse funds.
Servicing the Loan
The bank will set the terms of the loan at the outset. They typically allow you to service the interest until you complete the construction or until a specified future date. It is rare for them to request that you begin repaying the capital immediately.
You can save a fair amount of money with proper construction loan administration. Rabbet keeps track of all your expenses, allowing you to draw funds at optimal stages and minimizing your interest payments. You can also set the software to remind you to make your payments on time, helping you avoid penalty fees.
Streamline Your Processes Today!
See our innovative software in action and make construction loan administration effortless. Get started by scheduling your free demo today. Our friendly consultants will walk you through the features and answer any questions you may ask.