5 Tips for Getting Financing For Your Modular Construction (Plus, 1 thing to avoid!)

Starting on a modular construction project for your large-scale project holds the promise of efficiency, flexibility, and innovation. Whether you're planning to build a residential complex, a commercial space, or an industrial facility, securing financing is a crucial step toward turning your vision into reality. 

However, navigating the landscape of funding options can be daunting, especially in the realm of modular construction. Although this innovative construction method is quickly taking the industry by storm, many lenders remain reluctant to fully embrace it due to unfamiliarity or perceived risks. This hesitancy can pose challenges for developers seeking financing for their modular projects. 

But, after completing hundreds of large modular projects across the globe, we’re here to assure lenders that modular construction is not just a passing trend. It’s a proven method for delivering high-quality, efficient, and cost-effective buildings. 

Let's explore some key insights and actionable tips to help you navigate the complex terrain of modular construction financing with confidence and clarity. 

How is financing different in modular construction vs traditional construction? 

The primary difference between securing financing and modular construction is that lenders think that modular construction is a new industry. As a result, banks are generally less familiar with the unique aspects and intricacies of modular construction compared to traditional construction methods. This lack of familiarity can lead to apprehension and reluctance on the part of lenders to fully engage with modular construction projects. 

What we want lenders to realize is that modular construction has been used since the 1800s. This has given the construction industry generations of time to further innovate the process to where it lies today. Volumetric Building Companies (VBC) has been in operation for over a decade, having built large multi-story buildings in Poland, Germany, Netherlands, London, and all over the U.S. Modular construction has delivered groundbreaking results for decades and is here to stay. 

But, when it comes to financing, lenders are going to want to see the proof. Here are 5 tips for securing the funds you need for your modular project. 

#1. Work with a bank that has financed modular projects 

If you're a developer seeking financing for a modular construction project, it can be highly beneficial to work with a bank that has previous experience in financing modular projects. These banks are more likely to understand the unique aspects and potential benefits of modular construction, which can make them more open and receptive to financing such projects. 

Banks with experience in modular construction are likely to have a better understanding of the cost structures, timelines, and potential risks associated with these types of projects. This familiarity can make the application and approval process smoother and more straightforward. Additionally, these banks may also have valuable insights and advice to offer based on their experiences with other modular projects. 

To find these banks, you can start by conducting online research or reaching out to modular construction companies like VBC for recommendations. Remember, a bank that understands and supports your project can play a critical role in its ultimate success. 

#2. Show your lender the risk mitigation 

Mitigating risk is a key factor for lenders when considering financing for any construction project. For a modular project, it's crucial to demonstrate to your lender how modular construction inherently reduces many common risks associated with traditional construction. 

One key risk reduction component is the predictability of modular construction. Since the modules are built in a controlled factory setting, many of the variables that can cause delays and cost overruns, such as weather or site conditions, are virtually eliminated. Further, factory construction also means consistent quality control and adherence to building codes, reducing the risk of defects or non-compliance. 

Secondly, modular construction typically has faster project timelines. The ability to construct modules simultaneously with the site preparation can significantly shorten the overall construction period. Faster completion means the building can start generating revenue sooner, reducing the financial risk. 

Lastly, cost overruns, a common issue in traditional construction, are less likely in modular construction due to the precision of factory construction and the pre-determined cost of modules. This predictability of costs is another factor that can reassure lenders. 

In your proposal or business plan, detail the risk mitigation strategies and the inherent advantages of modular construction that reduce risk. The more confidence you can provide the lender, the better your chances of securing financing. 

#3. Invite your prospective lenders to a job-site or factory 

Allowing your prospective lenders to see the modular construction process in action can go a long way in alleviating any doubts or concerns they may have. Invite them to visit the job-site or, better yet, the factory where the modules are being constructed. 

During their visit, they can observe the precision and efficiency of the factory construction process, the rigorous quality control measures in place, and the skilled workers involved in the project. Seeing the reality of modular construction can help lenders understand the potential benefits and value of your modular project. 

Such visits can also provide an opportunity for lenders to ask questions and engage in meaningful discussions with the project team. This experience can foster a deeper understanding and appreciation of the modular construction process, further increasing their willingness to finance your project. 

#4. Develop a detailed project plan 

When seeking financing for a modular construction project, having a detailed project plan in place can significantly boost your chances of securing the funds you need. Lenders want to see that you've thought through every step of the project and have a clear plan for how you're going to execute it. 

Your project plan should include: 

• • A detailed timeline of the project, including key milestones and when you anticipate reaching them 
  • An overview of the project team, including the qualifications and experience of each team member 
  • A comprehensive budget that includes all anticipated costs and clearly shows how the funds will be used 
  • Detailed designs and specifications of the modular building 
  • A risk management plan that outlines potential risks and how you plan to mitigate them 

A well-crafted project plan not only demonstrates your preparedness but also shows lenders that you have a realistic understanding of the project and its potential challenges. This can give lenders more confidence in your ability to successfully execute the project, making them more likely to approve your loan application. 

#5. Build a Strong Investor Profile 

Lenders are more likely to finance projects if they feel confident in the project team. Therefore, it's crucial to build a strong investor profile that reflects your experience, knowledge, and competence in handling large-scale projects. 

Highlight any past successful projects you've handled, your technical knowledge of modular construction, your project management skills, and your financial stability. If you have reputable partners or stakeholders involved in the project, mention them as well. The goal is to convince the lenders that their investment is safe with you. 

The #1 thing to avoid: Misrepresenting yourself 

Honesty is paramount. Misrepresentation can lead to serious consequences, including legal ramifications, loss of financing, and damage to your reputation. It's important to be transparent and factual in all your communications with potential lenders. 

Banks will typically do their own underwriting of a project. If you inflate estimated income or downplay risks in the hopes of increasing your chances of getting your loan approved, lenders will easily sniff that out and deny your application. 

Be realistic and honest. 

Remember, integrity and transparency are key to building strong relationships with lenders and securing the financing you need for your modular construction project. 

VBC can help 

Volumetric Building Companies has decades of experience not just in designing and building highly efficient structures, but also in helping developers secure financing for their projects 

Collaborating with experienced modular construction firms like VBC can provide valuable insights and resources to help developers navigate the financing landscape effectively. Remember, due diligence is crucial in all your interactions with potential lenders. With preparation and the right approach, you can secure the financing you need to make your modular construction project a reality. 

Contact VBC to learn about your options.