Construction Lending

Construction lending can be challenging for a myriad of reasons

Vacant Land vs Cash Flowing Entity

Funding sources invest in Cash Flow. Said another way, they lend against real estate which value is determined by Cash Flow. Therefore, advancing funds before the structure is being leased (Cash Flow) means that funds are being advanced against collateral that has yet to reach its value (through stabilized income). Going from vacant land valuation to stabilized value with certainty that the value will be there upon building completing is a risk that most lenders shy away from. GPA Capital “cut its teeth” in construction lending.

For businesses in possession of open customer invoices with aging periods of 30 days or longer, the lag in payments can cause a severe strain on Cash Flow. Regular operational expenses, payroll, the cost of equipment, and more can eat into capital reserves while waiting for customers to make payments on open invoices. To fix and prevent the buildup of outstanding payments, many practices have started using factoring services.

Percentage of Completion

Choices become important.

Certainty of Value (Cash Flow)

For the collateral value to be assured upon completion and long term the owner must lease the property. This will involve a certain number of preleases or presales. Who will handle this? Will you have an anchor tenant which may attract other related or complimentary tenants?

Many Other Considerations

Construction loans are one of the more complicated commercial loans. GPA Capital with its well-educated and experience team rise to the occasion for these challenges