Builders already juggle numerous risks, including supply chain disruptions, subcontractor delays, and even weather-related issues. However, one risk often goes unnoticed—bank regulations.
New banking regulations, such as Basel III, and commercial real estate (CRE) lending caps, don’t just affect bankers. They decide if you get approved, how much you can borrow, and how quickly cash hits your account.
Here’s the problem: banks are slower and more restrictive than ever. Opportunities slip by while you wait for funding. Private lenders like Sound Capital don’t play by those rules—we keep your projects moving.
Why Banks Hold Back (Basel III)
Following the 2008 financial crisis, regulators required banks to maintain larger cash reserves. Construction loans got labeled risky.
For banks, this means that every dollar they lend requires another chunk to be set aside in reserve.
Your flexibility? Gone.
For builders, it means smaller loans, slower approvals, or flat-out denials—even when your project pencils.
Now, you might be thinking: “I don’t borrow from the big national banks, I go to my local or regional bank.”
True—Basel III only applies directly to banks with $100 billion or more in assets. But here’s the catch: when the big banks tighten up, the whole system feels it. Regulators lean harder on smaller banks, loan demand trickles down, and local lenders start adopting the same conservative standards.
So even if Basel III doesn’t bind your community banker, you’ll still feel the pinch in the form of lower loan-to-cost ratios, stricter underwriting, and tighter credit across the board.
When Banks Hit the Wall (CRE Caps)
Banks also face strict caps on how much of their book can be tied to commercial real estate. Once they reach their maximum, construction loans come to a halt.
For builders, that means one day you’re greenlit. The next day, you’re cut off mid-project—forced to scale down or scramble for cash.
Where Projects Stall (Underwriting and Draws)
Regulation doesn’t just block big loans. It trickles down into the everyday:
- Inspections stall crews.
- Draws that should take days stretch into weeks.
- Every extra form chews up momentum, cash, and credibility with your subs.
When speed matters, these slowdowns cost just as much as a missed delivery.
A Builder’s Reality Check
Picture this: you plan 12 homes in a fast-paced market. The bank agrees to finance 10. Midway, they hit a CRE cap. Suddenly, only six get funded.
You either downsize—losing revenue—or waste weeks finding gap financing.
A private lender could have structured financing around your original plan from day one. The difference? Four to six additional homes delivered—and millions in potential revenue.
This isn’t theory. It’s happening right now.
What Builders Should Do Now
Ask your bank tough questions:
- Are they near their CRE cap?
- How will Basel III rules affect your loan size?
- What’s their average draw turnaround? (If they dodge the question, that’s your answer.)
Don’t bet everything on one bank: Relying on a single capital source makes you vulnerable to their rulebook.
Line up an agile partner: Find a lender who knows homebuilding and funds at your speed. At Sound Capital, that’s our entire model—higher LTC, interest reserves, and one-time borrower approvals built in.
The Bottom Line
Basel III and CRE caps aren’t banker problems—they’re builder problems. The tighter the rules become, the more challenging it is for banks to fund projects consistently.
That’s why more builders are turning to private lenders. At Sound Capital, we’ve built a platform designed for builders—fast approvals, flexible structures, and capital you can count on.
When banks hit their limit, we keep your projects moving.
Want to pencil out your next project or safeguard against a bank pullback? Request a term sheet today, and let’s run the numbers together.
