Traditional banks denying your client’s loan application doesn’t mean it’s the end of the road. For builders and developers looking to build single-family homes, alternative financing can provide a practical path forward. Securing a construction loan through an alternative channel allows capital to flow based on real-world job site progress, keeping trade payments on track and site momentum strong.
Conventional lenders often involve lengthier approval timelines and provide loans in one large lump sum, which can create financial friction during a build. Alternative lending solutions, like those offered through PHL Capital Corp., offer a quicker approval process and provide payments based on project milestones, reducing the risk of the loan while still providing the necessary capital.
When does alternative construction financing make the most sense for your client?
Land purchases and ground-up builds often run into timing friction with standard bank rules. Conventional approvals take time, and strict debt-to-income limits can stall a file before excavation even starts. Consider alternative construction loans when your client:
- Needs bridge financing: If your client hits mid-construction capital shortfalls, an alternative lender may be able to provide bridge financing to keep the project moving forward.
- Requires fast-track purchasing power: In competitive markets with strict closing dates, traditional processing times can cost your client a deal. Flexible underwriting moves quickly to secure property, even while final permits are pending.
- Is a self-employed builder: If your client is self-employed, receiving financing from a traditional bank may prove challenging. An alternative lender may be able to provide financing based on equity rather than standard income documentation.
How do you know if your client is a good fit for PHL?
When considering a construction financing project, PHL Capital Corp. takes a holistic view of both the buyer and the project. Because construction projects, by nature, involve more risk, we are more conservative in our loans. When considering submitting an application, mortgage brokers should be aware that we:
- Focus on residential properties, particularly single-family homes.
- Require borrowers to have decent credit and reasonable savings.
- Consider the builder’s resume.
- Do not typically provide loans for property that is too remote.
- Typically provides loans between $50,000 and $3,000,000.
What is the process of acquiring alternative financing for construction loans?
While PHL does make every effort to streamline the process, a construction loan does require more assessment than a standard home loan (i.e. residential mortgage), as both the borrower and the viability of the project need to be assessed. Mortgage brokers interested in working with PHL to acquire financing for a construction project should be prepared to provide the following information:
- Application (including details on liquid assets)
- Credit bureau reports
- Builder’s resume (detailing past projects of similar size and scope)
- New home warranty (if available). Note: in British Columbia and Alberta, new home warranties are mandatory for new builds and cover defects in materials and workmanship.
- Building permit (if available)
- Appraisal
- Building plans
When considering a loan, our documentation requirements focus on builder resumes, building plans, and mandatory New Home Warranty coverage in BC and Alberta. PHL offers distinct construction terms, funding up to 65% LTV on the end value (net of GST), and offers a $3 million maximum loan cap. We also offer a draw structure with borrowers withdrawing funds at the time of land purchase, 40% completion, 70% completion, and 100% completion.
Case Study
A borrower had approached PHL seeking construction financing for a 4-plex in the Lower Mainland. The project was unique in that it involved building four smaller detached homes on a single lot, which would be stratified upon completion. Given that the marketability was clearer than a typical 4-plex design, we were able to assist the borrower with a construction loan from land to completion. They only required 47% LTV of the end value of the units, net of GST.
Frequently Asked Questions
- When should a mortgage broker recommend alternative lending for a construction loan?
Alternative lending can be a viable option when clients face strict closing timelines, unique income situations, or unexpected funding gaps mid-build. It is also particularly helpful for time-sensitive land purchases or bridge financing scenarios where traditional bank approvals move too slowly for the project’s schedule. - What type of properties and loan amounts does PHL typically finance?
PHL primarily focuses on residential single-family properties and multi-home single-family projects. Loan sizes generally range between $50,000 and $3,000,000, provided the location is not overly remote and the project presents a viable structure. - How does the approval and draw process differ from traditional banks?
Unlike traditional lenders that often take extended periods to approve and disburse funds in a single lump sum, alternative lenders like PHL generally offer a quicker approval timeline. Construction financing is often structured around project milestones, releasing funds as progress is made to help manage project risk and maintain steady cash flow. - What criteria does PHL evaluate when reviewing a construction loan application?
Applications are assessed through a holistic view of both the borrower and the overall project viability. Key factors typically include the borrower’s credit history, liquid assets, reasonable savings, and the builder’s track record with similar builds, alongside standard documentation like appraisals and building plans. - What documentation should mortgage brokers prepare when submitting a project to PHL?
Brokers should typically gather the loan application detailing liquid assets, credit bureau reports, building plans, an appraisal, and the builder’s resume. Depending on availability and regional requirements, submitting building permits and new home warranty documentation—which is mandatory in provinces like British Columbia and Alberta—can also help streamline the assessment process.
Have a construction scenario on your desk? Reach out to our team today with your file details. Let’s keep your client’s project moving.
Disclaimer
This blog article (“Blog”) is for information purposes only and may not reflect current legal developments or any updates to industry terminology. Accuracy of information in this Blog is not guaranteed. “PHL” refers collectively to PHL Capital Corp., MortEq Lending Corp., and Oakhill Lending Corp. While all information in this Blog is provided in good faith, PHL, and any affiliate, subsidiary or related party of PHL Capital Corp., make no representation or warranty of any kind, express or implied, regarding the accuracy, validity, reliability, or completeness of any information in this Blog. Readers are encouraged to consult independent legal, tax, and accounting advisors prior to making any financial decisions. PHL Capital Corp. is a licensed mortgage brokerage in British Columbia, Alberta, and Ontario (Ontario licenses #13546 and #13570).
