How Do Commercial Construction Loans Work?

When you have a new construction project or a serious renovation coming up, financing is obviously an essential part of the plan. But there’s a catch: long-term financing won’t be available until the project is stabilized. So how do you get the capital you need to get your project started while waiting for permanent financing? You might want to look into a commercial construction loan from a hard money lender.

 What is a Construction Loan?

 

A commercial construction loan is designed for the short term — they are typically for 6 months to a couple of years in length. They are also interest-only loans, though that interest is often bundled into the loan itself. Construction loans are funded through installments called draws, that are based on a predetermined milestone schedule, and they are repaid when the work is done.

A major benefit of getting a commercial construction loan from a hard money lender is the speed with which you can close — normally just days. The process can be a month or more through a traditional lender, and another builder could snatch up the property while you wait.

A Short Commercial Construction Loan Overview

In most cases, a commercial construction loangives a builder or investor the capital they need to cover the cost of building a property from the ground up. Once the property has been completed, the borrower pays back the loan when the building has sold, or when it has entered into permanent financing.

What Does it Take to Get A Commercial Construction Loan?

To qualify for a commercial construction loan from a hard money lender, you need to ensure your project looks like a good investment. All that takes is a little homework.

·         Put Together Your Bluebook
Your lender is going to want to know about everything going into this new construction, so be as detailed as possible. You’ll want to include floor plans, a list of materials, a list of suppliers and subcontractors, cost and profit projects, and a thorough timeline.

·         Have a Qualified Builder or Contractor Lined Up
No lender will finance your project unless you have a reputable and fully licensed builder or contractor on board, so you’ll want to put together a list of your builder’s past and current projects (including a profits/loss report). If you are acting as your own general contractor, bring in that same information about your project history.

·         Have a Down Payment Ready
Expect to put down 20% on average. By putting “skin in the game,”the borrower is more able to stay focused andfollow through with the project, even if a major problem occurs.

·         Be Able to Repay
A lender will want to see proof of your income and check your credit. Make sure you have all of this information in order.

·         Get the Property Appraised
The qualification criteria of your loan will be based on the projected worth of the finished project.

Do the Research, Get the Loan

Once you have everything properly lined up, you’ll be ready for the application process. A good private lender such as Walnut Street Finance will help you close your commercial construction loan in a matter of a few days, so you can get started on your new commercial bill. 

Contact Us:

4021 University Drive #200
Fairfax, VA 22030

https://walnutstreetfinance.com