7 ways that construction finance is changing

Builders are constantly reacting and adapting to the changing realities in the construction industry. Builders are facing a massive shortage of skilled labor in the UK while the unfavorable construction finance situation is also forcing builders to approach new and innovative ways of construction financing, to help them keep up with modern challenges. Construction finance is changing through the following ways.

Interest Rates are Soaring 

A few years back, you can secure a construction lending if you are eligible for construction finance, today, it is more than just qualifying for such loans. The rising costs of construction materials and higher inflation rates have forced most lenders to increase interest rates on construction borrowing. In the UK, the interest rates have been increased several times in the past year. while the construction resources are limited, the demand for construction funding is ever increasing all around the country. In order for interest rates on construction finance to stabilize and for the inflation to stay under control, the demand for new homes may have to be regularized and costs of construction materials must be regulated.

Modularization Will Significantly Cause Disruption in Construction Industry Financial Landscape

Modular companies or construction finance lenders are entering the arena and that could be a real issue for bigger lenders such as commercial banks. Modular financier for construction projects are springing up all around the UK on a regular basis and they are making it easier for those eligible for construction finance to qualify for loans. They also offer more flexible repayment options and many of these financiers opt for stakes in construction companies, instead of asking them to repay the loans, which means they will get a significant part of the profits generated by construction companies.

Online Lenders are Disrupting the Game

Aside from smaller modular lenders in the construction finance business, there has been an increase in the number of online lenders, especially for smaller construction finance loan applicants. Smaller construction firms make up the bulk of the construction industry and these are the people targeted by many online lenders. Online lending groups are successfully disrupting consumer lending for some years now and the trend will surely be in vogue for many years to come. Most online construction finance lending groups make use of crowdfunding opportunities to fund construction projects, which means individuals within the group pull resources together to borrow construction firms money, for some interests that will be shared among the funding contributors.

Adoption of New Technology in Construction Will Facilitate Financing

The current trend in the construction industry is the adoption of the best available technology where workers injuries have greatly reduced and safety has been enhanced, which means construction insurance service providers have less to worry about. With high tech tools providing better safety for construction workers, banks and other non-traditional lenders are seeing the lower risk as one major requirement for construction firms to qualify for funding.

The current high-tech trend in construction includes the use of digital devices such as wearable technology, drones, and automated building devices.  More than half of construction companies in the UK have adopted wearable technologies, and are using job site workers tracking devices to communicate easier and better with them. With safety and productivity being the major concerns of construction financiers, it is logical to say that new technology adoptions will influence the chances of construction firms securing loans for their projects.

Equipment Renting is Fast Replacing Equipment Purchasing

Construction firms are beginning to see the benefits of renting construction equipment as opposed to an outright purchase of such equipment. With the renting of construction equipment, it means there will be lowered upfront financial investment which many banks are likely to bankroll. The simple explanation for this is “The bigger the construction finance loan, the higher the risks to the bank and the less likely the applicant can meet up with all requirements”.

Other benefits associated with equipment rental include; the saving on maintenance cost, meeting on-demand construction jobs and greater convenience. Lenders will see all these benefits of equipment rental as lower risks to their financing, hence they are more than willing to loan out the funds.

Green Buildings are Priority for The Government  

It is important to note that the UK government is offering huge incentives and lower interest loans to construction companies willing to design and construct environmentally-friendly buildings. The aim of the government in this regard is to reduce carbon footprint and reduce the impact of traditional construction methods on the environment. Aside from the government, many traditional lenders including banks and equity-oriented lenders are open to lowering interest rates and increase repayment terms for construction firms going into energy-saving constructions. It is expected that Green builders will likely continue to secure construction financing more easily than conventional construction contractors.

Commercial Construction Financing is Taking the Center Stage

Unlike a few years back when residential construction financing used to be the focus of construction financiers, the increasing rates of home foreclosure in the UK has forced many of these lenders to focus more on financing commercial building constructions. Equity lenders, for instance, believe commercial buildings will bring them more profits than residential buildings while the banks will take the opportunity to impose higher interest rates on commercial construction loans.

Conclusion

The construction finance situation can be a complicated one. In order to be eligible for construction finance, you need to show proof that you were able to meet up with the repayment terms of previous loans taken, especially from other commercial banks. You will have to deal with a number of paper works which can even delay the issuance of such loans. You will need to show proof of equipment purchase or lease, and you need to prove that your company along with the workers are properly insured. Any default in your records of loan repayment can raise a red flag which may reduce your chances of securing the loan. Most traditional lenders may also ask for the proof of taxes filed in recent years and your credit records.

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