Construction projects require significant funds to complete. Even small projects come with substantial costs. Financing a construction project becomes necessary for persons or companies unable to outlay cash. Anyone wondering how to fund a construction project should look at three common ways to do so.
The Loan Option
Few express surprises over the notion a loan may finance a construction project — banks finance loans for construction deals all the time. Unfortunately, a bank will also turn down loan request consistently. A construction project may come with risks. Can the borrower ultimately pay back the loan? A traditional bank is wise to ask such a question. A would-be borrower should think about looking towards lenders willing to take on construction financing.
A particular lender may specialize in these types of loans. The interest rates could be higher with such a lender. Riskier loans come with higher costs. Borrowers needing a vital construction project to be completed may be willing to accept such terms. One way to find better terms involves not waiting until the last minute to seek out a lender. Prudence and deliberation are two vital traits for anyone in business. The traits prove helpful when making any financial decisions.
Private Equity Investments
Investments take many forms. Owning a business, for example, reflects an investment. The primary owner, however, does not have to be the only person with a vested interest in a company. Through private equity funding, a person or persons may invest in a business. For the investor, private equity deals do come with risks. Repayment will usually rely on profits generated from the business. The entity offering an equity investment won’t be locked into making payments if the business doesn’t generate revenue. With a loan, repayment is mandatory.
From the perspective of the individual requiring funding, private equity deals bring less financial risk. Laws and regulations do exist to make sure anyone offering a private equity investment does not harm investors. Failure to adhere to the law, could prove civilly and criminally disastrous.
Before heading down the path of drafting a private equity investment, learn what is required to follow the letter of the law.
Bringing in Partners
Owning a business outright maybe someone’s dream. Operating the company with long-time trusted partners could prove consistently beneficial. Bringing in someone new as a partner certainly comes with question marks and worries. When options are limited, perhaps selling a percentage of the business to a new partner might be worthwhile. This decision can never be entered into lightly. Weigh the positives and negatives, and then determine whether selling an interest to a new partner is workable.
Construction projects may stall due to a lack of funds. Looking at viable means of financing the project could overcome any hurdles. The methods listed here represent three options to explore.