Getting a construction loan for a new facility

If your business is contemplating opening a new facility, one of the first things you will need to do is get a construction loan. A construction loan will not only help pay for the costs of the materials and labor, but also such things as land acquisition, building construction or improvements, all fees and permits associated with building, appraisal, title work, searches, surveys, machinery and equipment, and even furniture and fixtures.

Construction loans for a business are a little harder to obtain than residential construction loans. Certain banks prefer specific types of property for lending money, and the terms for construction loans are generally much shorter than with a mortgage.

In addition, business construction loans take much more into consideration than just credit history - factors such as the industry of your company, how profitable it is, how long you've owned the company, and your experience with business or entrepreneurship will be some of the deciding factors as well.

Before applying for a construction loan for a new facility, you may want to keep the following in mind:

• Know the terms. There are a number of things to take into consideration when going for a loan. You might be getting a great interest rate, but will the loan end once construction is done, requiring you to apply for another mortgage for the completed facility. Some things you will want your loan to cover include long-term financing once the construction project is finished, so you won't have to apply for a bridge loan, as well as making sure there is just one set of closing costs and just one lender.
• Get a credit rating report. Although other factors will be taken into consideration, your credit rating will also be a determining factor in whether or not you can get a cash flow loan. Your history in making payments on time will be of great impact. While this is not a necessary document for a lender, since they can get your credit report very quickly, it's good for you to know, especially if you're not sure what your credit score is or if you think it is damaged. In order to get a report, call one of the three credit reporting agencies, Equifax, Experian, or TransUnion (keep in mind that credit reports are only free once a year, so if you have gotten a report in the past 12 months, you may have to pay a nominal fee.) Once you get your report, it will let you know what you need to do to improve your credit score if necessary. If your score is low, you will need to bring it up before attempting to apply for a loan.
• Know your collateral. Your collateral are the things you're willing to allow to be repossessed should you be unable to repay your loan. This could be your house, your car, or company equipment.
• Know the state of your business. Your lender will want to make sure your business is profitable. You will need to have a positive cash flow as well as an appropriate debt/worth ratio in order to qualify.

Getting a construction loan for a new facility can be a lengthy process, but by being prepared, you will increase your odds of obtaining one.