Getting funding for a construction project can be tough or smooth depending on various factors such as your financial standing, creditworthiness, quality of your presentation and proposal. Every lender (or investor) wants to know what they are getting from a project or business plan. They are bound to ask you tough questions, test your proposals and ask for a lot of documents. If you want to increase your chances of getting building finance, you have to prepare the required documents, and you must know the options available for you in your region:
Prepare a Cost Estimate
The first step in securing construction finance is preparing a cost estimate for your proposed project, and you can get this estimate from a consulting quantity surveyor or certified estimator. If you already have the sketch plans or architectural drawings, the quantity surveyor will need them to prepare an estimate. You will need to pay the quantity surveyor for this estimate, since it’s a professional document with quantitative and qualitative input. Do not assume that you can get an estimate anywhere e.g. from a building contractor, because what the contractor gives you is not an estimate, but just a quote.
The quantity surveyor can prepare three types of estimates, the Superficial Floor Area Estimate, Elemental Estimate or Provisional Bills of Quantities.
When you have obtained the estimate, the next step is approaching your bank to get a bank rating or letter of financial standing. If you have a good bank rating or credit score, the sponsors will view you in a positive light, but if you have negative rating, it will reduce your chances of landing a contract.
In applying for funding, you have to decide whether you will apply as an individual or as a registered company. If you are applying as a company, you might be required to submit proof of business registration and tax certificates.
Items that may be required by investors are outlined below:
- Cost estimate
- Proposal ,Presentation
- Business/Financial plan with cashflow and cost projections
- Bank rating/score
- Letter of financial standing from your bank
- Guarantees from building material suppliers and other creditors
- Business registration
- Tax certificates
- Proof of vacant land or site on which the construction will take place
- Building license or building plan approval
Prepare a Financial/Business Plan
Find a financial consultant to prepare a professional business plan. If you are not a business, you can still prepare a financial plan with cashflow and cost projections. Investors prefer to work with numbers and if your plan is financially viable, they will be impressed.
Prepare a Professional Presentation/Proposal
Prepare a motivational presentation that includes your mission, goals, background etc. Explain why you think your project deserves funding, how you plan to achieve your goals, the benefits of your project, the challenges, risks and how you plan to respond or mitigate the risks.
Get a Building License
If you already have a building license, investors will take you seriously. It shows your determination and resolve to go ahead with the project. As you negotiate with investors, you will be talking about land that you already have to build the proposed project. Discussing plans that have not been implemented does not instill confidence in investors.
Obtain Credit Guarantees from Material Suppliers
A credit guarantee from building material suppliers gives you an advantage as it shows proper planning on your behalf. When other creditors are endorsing and supporting your project, it’s a sign of confidence in your project, so other lenders are more likely to pitch in.
Where To Get Funding
You can get funding from multiple sources. The following are places to solicit or apply for construction funding:
- Commercial banks,
- Development banks
- SME banks
- Lending institutions
- Property developers
- Pension fund organizations
- Building societies
- Government banks
- Investor joint ventures