What Lenders Look for in a Ground-Up Construction Project

 

Getting financing for a new development starts with proving that the project makes sense. Lenders aren't simply reviewing the borrower's financial profile. They want to know whether the proposed construction can be completed within budget, whether the team has the necessary experience, and whether there is a realistic plan for repaying the loan.

A strong application should include the property details, architectural or construction plans, scope of work, estimated costs, construction schedule, and information about the builder. If you are working with a general contractor, their qualifications and previous experience can become an important part of the application.

The financial structure matters as well. With new construction loans, lenders commonly examine loan-to-cost because it shows how much of the overall project the lender is financing. The borrower's contribution provides equity in the project and can reduce the lender's exposure.

You should also have an exit strategy in mind. Selling the finished property or refinancing into long-term financing are common approaches, depending on the investment plan.

Once financing is approved, funding may be released according to construction milestones. Planning around these draws is essential because contractors need reliable access to capital as each phase progresses.

Good construction loan financing should therefore be evaluated based on more than the headline loan amount. At InstaLend, project details, LTC, construction experience, and milestone-based funding all form part of the process.