Facing a funding shortfall during construction can cause a chain reaction of complications, leaving homeowners and developers in a daunting situation.
But can you get a construction loan mid-construction? Yes, if you can find the right lender with the right experience.
Project leaders know that when funding is lost midway, all construction work may abruptly halt, potentially leaving the property incomplete and non-functional. Legal disputes, credit score issues, and the threat of foreclosure become real risks.
In this article, we explore the challenges of securing funding in the middle of the project and the potential solution offered by hard money lenders for a construction loan mid-construction.
What’s your loan scenario?
What can happen if you lose funding mid-construction?
Losing funding in the middle of a construction project can be a daunting scenario for any homeowner or developer. When you lose funding midway through construction, a chain reaction of complications can unfold.
Firstly, construction work may come to an abrupt halt—possibly leaving the property in an incomplete and non-functional state. This can lead to a loss of valuable time and money, as well as potential penalties from contractors and subcontractors.
Legal quicksand and credit score issues
Additionally, the absence of sufficient funding or a sudden stoppage of work could trigger legal disputes and breach of contract issues with lenders and construction partners.
Unresolved financial gaps can damage your credit score and hinder future borrowing opportunities. The prospect of foreclosure or having to sell the property at a loss becomes a real threat if the funding issue remains unresolved.
To avoid these dire consequences—ideally—it would be best to have a contingency plan in place before commencing any construction project. But many project managers find they don’t have the time or capacity to come up with a just-in-case backup financing plan.
Therefore, if your financing falls through mid-construction, you must move quickly to find new funding and resume the project asap.
Why traditional lenders are hesitant to fund half a project
Traditional lenders exhibit a natural aversion to providing funding for projects that are already underway. Several factors contribute to this hesitancy, primarily centered around risk management and uncertainty.
Assessing the current status
One crucial concern for traditional lenders is the lack of oversight and knowledge about the initial stages of construction, making it challenging to assess the project’s progress and quality.
When joining a project midway, lenders may also find it harder to accurately gauge the potential risks and rewards. Unless the lender is familiar with construction fundamentals (at the very least), they may not have a clear understanding of factors like architectural principles, the reliability of contractors, or the quality of materials used—just to name a few.
Moreover, they might fear they could be inheriting existing issues or mistakes that were made during the early stages of construction, amplifying their financial risk.
Traditional lenders generally prefer projects that have a well-documented and detailed business plan ahead of time. If a project is already in progress, it may lack the comprehensive financial projections and feasibility studies that many conventional lenders usually require.
Don’t give up hope
However, this cautious approach from traditional lenders doesn’t mean that securing funding mid-construction is impossible. After exhausting conventional lending options, most borrowers will start checking out non-traditional lenders who have specialized expertise in construction financing and who are more willing to evaluate ongoing projects with a focus on the current stage and future potential.
The flexibility and speed of hard money for a construction loan mid-construction
In the context of mid-construction funding, the flexibility and speed of hard money lending can be a game-changer for borrowers in need.
Unlike traditional lenders, hard money lenders like Marquee Funding Group are more inclined to fund projects mid-construction due to their unique approach to financing.
Quick approval process
Hard money lenders prioritize efficiency, enabling borrowers to obtain funding much faster than through traditional avenues. With streamlined approval procedures and fewer bureaucratic hurdles, borrowers can secure the necessary funds promptly, preventing unnecessary delays in construction progress.
Hard money lenders focus on the underlying asset’s value (the property) rather than solely relying on creditworthiness and financial history. This asset-based lending approach allows them to assess the project’s potential more objectively, taking into account the current stage of construction and the property’s overall value.
Flexibility in loan terms
Hard money lenders offer more flexible loan terms and repayment schedules tailored to suit the specific needs of borrowers and the unique aspects of their ongoing projects. This adaptability is particularly beneficial for mid-construction funding, where traditional loan structures may not align with the project’s current stage.
Expertise in construction financing
Hard money lenders, like Marquee Funding Group, specialize in construction financing and understand the challenges and dynamics associated with ongoing projects. Their experience in this niche field allows them to provide invaluable insights and support to borrowers, fostering successful project completion.
Look to Marquee Funding Group for a construction loan mid-construction
In conclusion, the flexibility and speed of hard money lending make it an attractive option for funding mid-construction projects.
Borrowers who are in this kind of crisis can capitalize on the unique advantages offered by hard money lenders to overcome funding gaps and complete their projects with confidence.
Collaborating with a reliable lender—such as Marquee Funding Group—enables flexible construction loans that can get your project up and running again.
We also have an outstanding track record of supporting clients throughout the entire building process, the sort of knowledge and experience that can be a lifesaver in such situations.
What we offer:
- Underwriting processes based on practical and common-sense principles.
- Loan amounts spanning from $50,000 to $20 million.
- A Loan-to-Value (LTV) that can reach up to 70%.
- Loan options for both owner-occupied and non-owner-occupied properties, whether for consumer or business purposes.
- Expertise in various property types, including single-family, multi-family, commercial, industrial, construction, and land loans.
- The flexibility of purchase money, rate-and-term refinance, and cash-out refinance options.
Photo by Rene Asmussen