Whether applying for a loan at a traditional bank or going with a private, non-bank lender, there are steps a builder can take to up their chances of closing a deal, such as owning the property first, if possible; conducting their own market study and research; pulling permits; and having completed successful deals in the past.
“You just have to show them a track record, and know what your exit price point is up front,” says Robert Suris, founder and principal of the Miami-based Estate Companies. “That’s extremely important.”
Also, both banks and private lenders want to get a holistic picture of a company before doing a deal. They want to see capital reserves so that if home prices go south before the end of the project, they know you’ve got a cushion to make up for it.
That means being able to provide financials, projections, and a business plan not only for the project you’re seeking funding on, but for any other builds that may be underway at the time, as well.
“Be prepared to explain with full transparency the entire company, and the range of all your projects, not just the one you’re trying to get financing for,” says Brian Hoffman, co-owner of Red Seal Homes. “It means being very organized, with years and years of tax returns for the principals, guarantors, and the company itself. It’s just a very detailed and labor-intensive process today.”
Ken Fixler of Barnett Homes recommends physically walking a lender through your business, step by step.
“We like to invite them to our office to see how we operate and that we have a real organization here,” says Fixler. “Then, we’ll take the rest of the afternoon to show them the projects we have going at different stages, so they can see how we build from the ground up.”
NAHB chief economist Robert Dietz says the one advantage builders have in the lending market today is the persistent shortage of housing in many regions. He advises showing banks and lenders the demand that’s present in your area and how you can take advantage of it.
“Invite bankers out to your local builder association meetings and walk them through the local data in terms of inventory and the need for additional home construction,” Dietz says. “Show them the current stock of inventories of lots and divisions under development. I think that kind of education will pay off.”
