Everyone loves a “cheap” loan.
Especially on paper. A lower interest rate looks like free money. If one lender is a half-point lower, most builders jump.
But here’s the truth: cheaper isn’t always better. In fact, it can be a trap.
That “cheap” loan can cost you hundreds of thousands more by draining your liquidity at closing. It ties up your capital, locks you into one project, and leaves you scrambling when the market shifts.
The banks don’t tell you that. They brag about their rates. Meanwhile, you’re stuck funding their balance sheet with your cash.
Smart builders don’t ask, “What’s the rate?”
They ask, “How much cash am I going to burn just to get this loan off the ground?”
The Real Cost of a Cheap Loan
Let’s break it down.
One lender waves a rock-bottom rate in your face. Looks great… until you read the fine print.
- They’ll only cover $3 million of your $3.8 million project. That means you’re wiring $800,000 of your own cash to close.
- They allocated $175,000 in interest reserves, but your project actually requires $325,000. That’s another $150,000 straight out of your pocket.
- They’re capped at a 60% loan-to-value ratio. Translation: they’re safe. You’re exposed. If anything goes sideways, they foreclose and walk away with your half-built asset.
So what did you save with that “cheap” rate? Maybe $40,000 in interest over the life of the loan.
What did it cost you? Almost a million dollars of dead money is locked in one deal.
That’s not savings. That’s suicide.
Liquidity isn’t Optional — It’s Your Lifeline
Cash isn’t just numbers on a spreadsheet. It’s fuel. It’s velocity.
When you lock nearly a million dollars into one deal, that money is dead. It can’t start your next project. It can’t buy materials at a discount. It can’t give you leverage with subs.
Say your target return is 10%. That $950,000 you parked? It just costs you $95,000 in lost profit.
But it’s worse than dollars. Its doors. One less home built. One less sale closed. One less project moving through your pipeline.
That’s how builders stall out. Not because they ran out of deals. But because they ran out of cash.
Competent builders know: it’s not about shaving half a point off your rate. It’s about preserving your liquidity so you can build faster, bigger, and stronger.
5 Gut-Check Questions Before You Sign Any Loan
Forget the headline rate. That’s the bait.
The real question is: What’s this loan going to bleed me for at closing?
Smart builders dig into the structure:
- How much cash am I burning at close—and how much will I still have to keep building?
- Does this loan truly cover the whole build, or am I fronting the shortfall?
- Are the interest reserves real, or will I be writing checks halfway through?
- Does the lender understand my velocity, or are they just plugging numbers into a spreadsheet?
- Is this loan built for my growth—or to protect the lender’s balance sheet?
If you can’t answer those questions with confidence, the deal isn’t serving you—it’s strangling you. Builder-friendly financing is about one thing: keeping your capital in your pocket. Because the more cash you hold back, the more you can do.
- Kick off your next project without waiting to recycle funds.
- Absorb delays, overruns, or cost hikes without panic.
- Negotiate with subs and suppliers from a position of strength, not desperation.
Cash at closing is the difference between a builder who grows… and a builder who grinds.
Real Example: Same Project. Two Loans. Two Futures.
One of our builders shopped the same deal to multiple lenders.
Option A: A bank dangled a rate nearly 1% lower than ours. But the catch? He’d have to wire an extra $700,000 at closing. That’s $700k sitting dead in one project, earning nothing, exposing him to every hiccup in the schedule.
Option B: Our structure. Higher leverage. Full interest reserves. Faster draws—less cash at close.
Here’s what happened: instead of parking his capital, he kept it liquid. Within 45 days, he launched a second project. Now, instead of waiting a year to recycle his cash, he had two builds moving in parallel. Two sales cycles. Twice the profit potential.
That builder didn’t pick the cheaper rate. He picked growth.
Build With Freedom, Not Friction
Construction is already a challenge due to weather, labor, and tight timelines. The last thing you need is a loan that drains your cash before you even break ground.
The more liquidity you preserve, the more control you have over your pipeline, your profit, and your future.
At Sound Capital, we don’t sell “cheap rates.” We build loan structures that keep your money working — smarter leverage, full reserves, faster draws, and terms designed for builders who want to grow.
Stop parking your cash in someone else’s balance sheet. Put it back to work in your business.
If you’re evaluating your next project, let’s talk. Contact us or request your term sheet today and see how quickly we can move.
Still planning? Grab the Builder’s Financing Guide and discover why our approach helps builders scale when banks slow them down.
