Funding your project can be confusing especially if you haven’t needed it before due to working exclusively with your bank. Most people have limited knowledge of how the lending process works or how to find all the options that are available. In fact, many people, when turned down by their bank think that means they won’t be able to fund their project, but that’s not necessarily true.
Below you’ll find a quick overview of some of the differences between loan programs and how they are best used. When working with a finance broker, one of the biggest benefits is all the programs available to us to help you find the right one. Banks and direct lenders have a limited set of options available to you and if your project doesn’t fit that criterion, you have to reach out to many of lenders to find the one that fits your needs. When working with SBF, we do all the legwork for you to find the best loan program for your project so you can focus on your project rather than fund raising.
Residential Construction Loans & Conventional Loans Defined
A key difference between construction and conventional loans is the purpose each serves.
Construction loans are designed to fund the build or renovation of a residential project.
Conventional loans are intended for the purchase of an already completed and inhabitable
property.
3 Differences Between Construction Loans & Conventional Loans Disbursement
Conventional loans disburse the entire loan amount at the time of funding. The loan proceeds
pay off existing liens on the property, various closing costs, and the deeded owner.
Construction loans disburse funds as development progresses through a series of draws- the
disbursement of loan funds to the borrower. Funds are released based on third-party project
progress inspections.
Interest
Construction loans typically only charge interest on the drawn balance; the borrower is only
charged interest on the loan amount utilized. Conventional loans start accruing interest on the
entire loan amount the day it is funded. Know your loan and check terms carefully.
Terms
Construction loans have a much shorter term, usually no longer than 12-24 months.
Conventional mortgages most commonly range from a 15–30-year amortization.
Differences Between Bank Construction Loans vs. SBF Construction Loans
Secure Business Finance construction loans exceed industry standards by allowing borrowers to access capital quickly, giving loan approval in three days, and getting closing documents to escrow in as little as five days. Our in-house servicing team funds draws within 3-5 business days. Another big difference is our borrowers. Regional banks offer construction loans to homeowners building a home to occupy as well as loans for builders. As a wholesale private lender, Secure Business Finance provides loans to business entities.