Commercial Construction Loans 101: What They're Used For And How To Get One
Posted on: 13 December 2017
When a company requires funds to build a new project, they usually file for a commercial construction loan. The loans are large enough to cover the costs of any fees associated with the construction of the property. Commercial loans are granted by banks, credit unions, and other lender businesses. If you are seeking a commercial construction loan, it is best to shop around for the best interest rates so you can find the best possible loan arrangement that meets your needs.
What are commercial construction loans used for?
The commercial construction loans can be used for a wide variety of projects. It depends on which company needs the loan. Some of the applications for commercial loans are:
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Strip malls
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Apartment buildings or condominiums
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Stores
Basically, any plot of land that does not have any existing structure on it can be used for a commercial construction loan to build a new commercial property.
What is the loan used for?
When the person is filing for the loan, they need to add up all the costs required for the project and try to get a loan for that amount in order to be able to fully afford the project. The costs associated with the loan include:
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Cost of buying the land
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Wages for the workers (if applicable)
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Permits
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Cost of materials
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Cost of contractors required to construct it
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Rental fees for equipment if required
As you can see, there is a lot of fees that need to be considered when applying for the loan. The loan amount is usually several thousand dollars once it is all calculated.
What are the steps to getting a commercial construction loan?
The first thing to do is locate lenders that grant commercial loans and fill out the necessary applications. If the bank accepts your application, the loan officer will draw up the terms of the loan and then each party will look over the terms to see if it is agreeable to everyone. The terms spell out the length of the loan, financing, penalties, interest, and anything else relevant to paying the loan off. Once everyone agrees, the official terms are drawn up and the contract is signed.
Considerations
It can be pretty difficult to get a commercial construction loan for a lot of people who apply for one. The banks take a huge risk with this type of loan, due to the fact that there are a lot of unforeseen delays or other problems with construction projects. The project may even require more money before the project is finished, which causes another problem with the lender. Some construction projects never finish and the owner may have difficulty paying the loan off. Click here to learn more.
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