The ins and outs of financing a construction project
July 8, 2020
Whether you are building a new practice premises, setting up a new practice or renovating your existing practice, undertaking a construction project can be stressful. There is normally a raft of different parties involved, from designers to planners to trades and many balls to juggle to bring it all together.
In terms of financing a project like this, how does it all work?
Generally, if you are building or renovating, your asset won’t start generating an income for you until the work is finished. Consider for example setting up a new practice, you are taking on debt before you even open the doors to your patients. If you are renovating your existing practice, it can be disruptive, and your income may take a dip while the work is underway.
So how do you make your loan repayments if there are no patient fees coming in or your income is reduced?
For this reason, Credabl will ‘roll up’ (add to the loan balance) the interest on the loan during the construction period, so the loan won’t actually impact your cashflow until the project has been completed. We can also structure your loan repayments post construction to give you a reduced repayment period which can be useful if you are starting up a practice from scratch – we understand that it can take time to build your practice up to a sufficient level where you are comfortably servicing your commitments.
Payment of Suppliers
Even with a standard practice renovation, there can be multiple suppliers involved, from design to fit out to equipment, they all need to be paid, often progressively and at different times.
Credabl can help you stay on top of the payments to your suppliers. At the outset of your project we will obtain a complete scope of works to understand what each supplier is doing and how much they need to be paid. We make it our business to keep up to date on how your project is tracking against both time and cost forecasts.
It helps that we know many of the suppliers in the medical industry and we have good working relationships with them. So, we can often liaise with them directly, obtain their requests for payment and once you give us the green light, we can draw down the loan funds and release the payment straight to them.
Construction projects can be a moving feast, most often because of something unforeseen that is encountered once the work starts or maybe just because you have a change of heart on the project specs and decide that you want to make a modification. These revisions to the original plan are known as variations and will often incur additional costs.
When seeking finance, it can be prudent to build in a buffer upfront to allow for some variation to the original build contract. We will discuss this with you and in most cases recommend that this is done so that you have the peace of mind in knowing that the project will keep moving along and the finance tap won’t be turned off before the project is complete!
At Credabl, we go about our business with the aim of making your life a bit easier when it comes to finance, so we take a hands on approach when helping you fund a construction project. We also understand what to think about before you take action and know the best in the business when it comes to suppliers who specialise in medical projects, so just reach out to us if you’d like an introduction!
The Credabl team is available to chat live on our website www.credabl.com.au or you can call one of our specialist lenders on 1300 27 33 22.
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