Commercial and construction loans are story loans.
That means that the lender has to know the story behind the planned construction before they're willing to advance funds.
WHAT IS A CONSTRUCTION LOAN?
A construction home loan is a type of home loan designed for people who are building a home or doing major renovations, as opposed to buying an established property. It has a different loan structure to home loans designed for people buying an existing home.
A construction loan most commonly has a progressive drawdown. That is, you receive instalments of the loan amount at various stages of construction, rather than receiving it all at once at the start. You generally only pay interest on the amount that is drawn down, as opposed to on the whole loan amount.
How do progress payments work?
Once a construction loan has been approved and the property is being built, lenders will generally make progress payments throughout the various stages of construction. Progress payments will typically be paid directly to the builder at the completion of each stage.
(1) Slab down or base: This is an amount to help you lay the foundation of your property. It can cover the levelling of the ground, as well as the plumbing and waterproofing of your foundation.
(2) Frame stage: This is an amount to help you build the frame of your property. It can cover partial brickwork, the roofing, trusses and windows.
(3) Lockup: This is an amount to help you put up the external walls, and put in windows and doors (hence the term ‘lockup’, to make sure your house is lockable).
(4) Fitout or fixing: This is an amount to help you install the internal fittings and fixtures of your property. It can cover plasterboards, the part-installation of cupboards and benches, plumbing, electricity and gutters.
(5) Completion: This is an amount for the conclusion of contracted items (such as final payments for builders and equipment), as well as any finishing touches such as plumbing, electricity, and overall cleaning.
HOW CAN MIDAS HELP?
With respect to property development transactions, Midas role is to:
Understand the clients requirements.
Assisting with project feasibility analysis.
Prepare a credit paper and submission outlining the transaction details, risks and mitigants.
Maximising lending ratios to allow a higher percentage of total project costs.
Provide a diverse funding source.
Negotiating the lowest interest margin and fees.
Negotiate other terms and conditions with existing and / or new lender(s).
Negotiating sensible outcomes with valuers and quantity surveyors and other consultants.
Assist with the implementation of post construction funding.
Adapting to changing market conditions.