commercial construction loan

Commercial Construction Loan

November 23, 2021
By Admin

Write about how Commercial Construction Loans are often used to finance the construction of commercial properties, including office buildings, retail centers, hotels, and more.

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Commercial Construction Loans - What You Need To Know

Intro:

Construction loans are typically secured by a lien on the property being improved or constructed. The owner of the property may also pledge other collateral for the loan. If the borrower defaults on the loan payments, this lien will be foreclosed upon to recoup any outstanding debt owed. Construction loans can come with relatively easy terms because they're backed by real estate and not an asset like stocks or bonds. As a result, it can fluctuate wildly in value over time; additionally, many banks offer construction loans with flexible repayment schedules that allow borrowers to make monthly interest-only payments until construction is complete. They then start making principal and interest payments for the life of the loan. In addition to offering flexible repayment terms, many construction loans allow borrowers to defer a portion of their loan payments – typically all but principal – during the hard-construction phase of a project.

Construction loans can be set up with soft costs and hard costs. Weak prices are fees that aren't directly related to completing a specific task on a particular job site, such as architecture or engineering fees, permits, utility connections and disconnections, soil testing services, insurance premiums, commissions paid to brokers or agents who sell space in an office building or mall being developed. Hard costs are associated with doing work at a particular job site which includes wages of employees working onsite toward completion of the project.

In this blog, we are going to cover everything you need to know about Commercial Construction loans.

What Is Construction Loan:

What Is Construction Loan

A construction loan is a type of financing usually secured by the property being improved or constructed. 

The owner of the property may also pledge other collateral for the loan. If the borrower defaults on payments, this lien will be foreclosed upon to recoup any outstanding debt owed. 

In addition to offering flexible repayment terms, many construction loans allow borrowers to defer a portion of their loan payments – typically all but principal – during the hard-construction phase of a project. 

Construction loans can be set up with soft costs and hard costs. Weak prices are fees that aren't directly related to completing a task on a particular job site, such as architecture or engineering fees, permits, utility connections and disconnections, soil testing services, insurance premiums, commissions paid to brokers or agents who sell space in an office building or mall being developed. Hard costs are associated with doing work at a particular job site which includes wages of employees working toward completion of the project.

How are they typically used? 

These loans typically come with relatively easy terms because they're backed by real estate and not an asset like stocks or bonds. Which can fluctuate wildly in value over time; additionally, many banks offer construction loans with flexible repayment schedules that allow borrowers to make monthly interest-only payments until construction is complete. They then start making principal and interest payments for the life of the loan. 

In addition to offering flexible repayment terms, many construction loans allow borrowers to defer a portion of their loan payments – typically all but principal – during the hard-construction phase of a project. 

Why are they often used for commercial properties? 

Commercial construction loans are often used for commercial properties because since most of the borrowers will likely be real estate developers/builders/owners, there is no issue with their credit history as there would be with a personal loan. In addition, since the loan is being taken out for commercial property instead of personal reasons, people who may have been denied from taking out average loans due to poor credit history can still apply for these types of loans.

The proceeds are used to finance the building or improvement of any structures on land owned by the borrower. The land can be located in one state, and the progress may be found in another state. This type of construction financing is also used for nonresidential buildings, including detached garages, medical offices, retail stores, restaurants, warehouses, etc., which are not owner-occupied or contain three or more residential units. 

Primary borrowers under construction loans are usually the real estate developer/builder/owner developing real estate projects for sale or lease purposes. Also permitted as primary borrowers are general contractors with significant experience in the construction industry. In addition, underwriters consider sales contracts acceptable proof of future access to equity if they provide for a specified increase in value upon completion of the project. The agreement is subject to a current market appraisal.

Hard costs are directly incurred costs typically associated with labor, subcontractor services, equipment rentals, materials, and supplies necessary for construction. This amount does not include indirect expenses such as real estate taxes due on land before or after construction, insurance premiums for workmen's compensation insurance, or property damage insurance which must be paid from closing funds. Construction loans also include "soft" costs that vary widely from lender to lender but may typically include plan check fees, permit filing fees, recording fees, interest on draw requests that are outstanding for more than ten days, etc.

Who can take out a construction loan

Commercial construction loans can be used by nearly anyone who is looking to improve their property. However, the primary borrowers will likely be real estate developers/builders/owners who typically construct commercial buildings with plans of selling or renting out the finished product. However, in some cases, these types of loans can also be taken out by general contractors who may use them for multiple projects at one time (though they would still need to meet all other requirements listed above).

One caveat about these types of loans is that while they are not credit-dependent like personal loans, you need to have enough income or assets to secure this type of loan if needed without defaulting on the loan. The other caveat that should be noted is that while you can use these loans for nearly anything. For example, they are typically not a good option if you need a short-term loan for a small purchase because this type of financing must go towards significant investments, which means it would have to be paid back over several years.

How do I know if I qualify for a commercial construction loan? 

Suppose you are interested in taking out a commercial construction loan. In that case, your lending institution will most likely want to look at several different things to determine whether or not they should approve it. First, they will want proof that you have enough income coming in each month to support this type of loan (typically with proof like tax returns, bank statements, etc.). They also need evidence that you own some valuable asset that can be used as collateral for the loan (like business equipment valued at more than what you are asking to borrow). In addition, they will also review your credit history before approving or denying the request since these loans are not credit-dependent like other loans.

What does it take to get approved for a commercial construction loan? 

Several different things will go into determining whether or not you qualify for a commercial construction loan and the terms of the loan once you do qualify. First, because these loans are typically larger than many others, usually $500,000 to $5,000,000+, your lender will want to ensure that you have enough income coming in every month to repay this type of loan over time (usually 2-3 years). Second, since rates on these types of loans tend to be higher since they are unsecured debt (meaning there is no collateral), lenders also try to keep their risk low by requiring borrowers with lower credit scores or those who don't have much income offer. In addition, lenders will often approve a smaller percentage of what they are willing to lend you initially. Then support a more significant amount once they see that you can repay it with your monthly income coming in from regular business sales/rental receipts.

How long does it take for commercial construction loans?

It may take anywhere from 3-5 days after receiving all of the required documentation for your lender to go over everything and determine whether or not they will approve the loan. If approved, they should also provide you with a list of things that need to be completed before closing the loan (like obtaining all necessary building permits, thorough inspections, etc.). 

What is the most common use for commercial construction loans?

Commercial construction loans are most often used to finance the development and building of commercial property such as retail centers, hotels, office buildings, etc. Because it is typically much cheaper than other types of financing options (like a bank loan or private equity) and since you can take out this type of loan to cover any size purchase you make.

Is there anything else I need to know about commercial construction loans?

Other things that should be noted about these types of loans are that they do require good credit to qualify and that while lenders will approve up to 85-90% of what the purchase price will be. In addition, many people use them for more than just one project/property since these are available for up to ten years if needed.

Where can I find more information on commercial construction loans?

More information about commercial construction loans, including the qualifications you need to qualify for one and how much money you will be able to borrow, can be found using this link: https://commerciallendingusa.com/Commercial-Construction-Loan.

Apply Now for a commercial construction loan with Commercial Lending USA

Contact Us for more details about commercial and business loans.
 

Standard benefits:

- Low interest rates

- Quick approvals 

Emotional benefits:

- Have the home of your dreams.

- Build equity in your home.

- Get out from under a landlord's rules.

Financial benefits:

- Lower taxes on your mortgage payments! 

- Make an investment that will grow in value over time. 

Emotional and financial security: The biggest benefit may well be the sense of belonging, being part of a family or community, being independent and self sufficient, providing a place for someone special to you, having a secure roof over your head no matter what life brings...

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