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Construction Loan 101: The Difference Between Private and Public Construction Loans

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Do you really know what construction loan is?

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Construction Loan;If you are a business owner, then you know the importance of finance. In case you want to expand your business and also if you want to develop your property then you need a good amount of money for the same. That is where construction loans come into play.

There are two types of construction loaans – private and public. Both types have their own pros and cons, so you need to choose one depending on your financial situation.

Private construction loans:

Private loans are those that are given by banks to the individuals who want to build their dream house. Banks are the ones who are responsible for giving the loans.

The major advantage of a private loan is that banks will lend you an amount of money up to the maximum limit that you can repay.

In case you are unable to pay back the money, then banks can sell your house to recover their money. But, it is a risk for them too.

Public construction loans:

Public loans are those which are provided by the government itself and it is very much common in India.

The government gives loans to individuals and companies to build roads, hospitals, schools, colleges and even airports.

Public loans can be repaid either directly by the individual or indirectly through the government. The rate of interest for this loan varies from 0% to 3.75% as per RBI rules.

The pros of this loan are that the government is the lender and hence the lending amount is less. But, the cons are that if your company does not pay back the loan in time, then the government will take away your assets.

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Construction loaans are available for both commercial and residential projects. These loans come in different forms and for different purposes.

If you are looking to construct a new building and need to fund your project, then a construction loan may be the best choice.

This type of construction loan is used by commercial and industrial projects. In order to avail a commercial construction loan, you must meet specific criteria which you can read about in this article.

These construction loaans are also commonly known as private financing. If you are looking for funding to build a new home, then you may choose a private construction loan.

This type of loan will be approved by a bank or other financial institution based on certain requirements. These are:

• The size of the loan

• Amount of deposit required

• Total cost of the project

• Repayment ability

• Location of the project

• Lender’s reputation

• Ability to make repayments

You will have to provide documents to the lender before applying for the construction loan. This will include:

• Title deeds

• Architectural drawings

• Price list of materials

• Project details

• Contract documents

• Business plan

If you qualify for a construction loan, you will need to deposit a security amount. This amount is usually 20% of the construction costs. If the construction loan doesn’t get funded, then the bank will deduct this security amount from your salary.

A construction loan for a commercial project will require you to deposit 30% to 40% of the total loan amount. A construction loan for a residential project requires you to deposit 10% to 20% of the total loan amount.

Conclusion:

You need to decide whether to go with private or public loans based on your financial condition. Choose whichever you like.

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