Written by Fernando Martin| December 19, 2018

Construction Commercial Loans

Commercial Loan Direct offers conventional construction loans for commercial real estate properties, SBA-504 companion mortgages for transactions that are approved via the Small Business Administration, and FHA loans for apartment complexes construction. Property types eligible for construction financing are as follows: industrial, medical, mixed use, multifamily, office, retail, as well as self-storage.

LTVs can go up to 75% through a conventional program but sometimes can go a little higher by obtaining an exception, 90% Loan to cost can be achieved through HUD’s FHA program for multifamily construction, and 90% with the SBA 504 program for owner occupied properties. Term lengths usually run between 12-36 months while the amortization is interest only during the term of the loan. Prior construction experience is highly preferred but there are exceptions in certain situations. Additionally, borrower’s should expect to have “hard cash” equity invested in their project, while being able to maintain a reasonable post-closing liquidity. It is important to note that on construction loans the lender usually sets up an interest reserve account which lender uses to make payments until certificate of occupancy status is achieved. This is done so that Borrower’s cash flow doesn’t get impacted in a negative manner during the actual construction period.There are usually two loans required to finance a commercial real estate construction loan, but sometimes these can be combined into one:

Option #1 – Conventional Construction Loans. This financing type is usually offered on investment properties and allows enough time to complete the construction and property stabilization. Once the property is stabilized Borrower usually sells it for a profit or refinances it with better priced long term debt.

Option #2 – Construction to Perm. After a project achieves “stabilization” and leases up to the market level of occupancy, the construction loan is “taken out” by longer term financing – this type of financing is all done by the same lending institution.

There are many variables that are important to understand when obtaining a construction commercial loan and it is important to understand them prior to starting the lending process.

For more information on commercial construction loans please visit our construction commercial loans page.

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