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Construction Factoring – A Different Form of Bank Financing

Construction Factoring – A Different Form of Bank Financing

Construction financing

Construction financing can be defined as the funding process that is required while paying for a construction during the construction period. This type of financing can also include the payment of a land, for its improvement, if necessary. The full amount of this payment is usually arranged much in advance before the process of construction takes places. The loan for construction financing is usually advanced by draws as the construction process achieves its preset milestones. This is an important aspect in any construction project and understanding the system of financing and its relation to the construction business is of extreme importance.

Following are some of the common sources which offer construction loans:

Commercial Banks:

Commercial Banks, which are believed to be the biggest construction lenders on commercial or multifamily projects, offer limited number of long-term loans and single-family short-term loans. They also make short-term to the REITs or Real Estate Investment Trusts.

Savings and Loan Associations:

These are the largest of all the loan providers, for both the construction as well permanent or long term single family housing loans. These associations are also the ones to make maximum construction loans to the multi-family housing projects like apartments and condominiums.

Mutual Savings Banks:

The mortgage investments of these financial bodies generally focus on permanent single family mortgages. They usually offer limited number of loan. However they do offer long-term loans to investment trusts and mortgage bankers which in turn make the construction loans.

Mortgage Banking Companies:

They provide good number of loans for construction as well as land development but act as intermediaries between lenders and borrowers.

Life Insurance Companies:

These companies make the minimum number of temporary construction loans as they mainly concentrate on long-term commercial and multi-family loans.

Real Estate Investment Trusts:

The REITs offer mortgages on long-term commercial and multifamily projects but their construction loans are limited in number.

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