The development of a commercial property is an involved process requiring a great deal of coordination. In addition to hiring contractors and experts, you also have to consider the scope of the project, your needs, and the cost. Commercial loans are an important part of modern business and commercial construction loans are critical for the financing of various commercial construction projects. Depending on the scope of your project, these loans can be quite sizable. A commercial construction loan can be an involved process and, by understanding the broad steps in the process, you can be better prepared to communicate your needs to the bank.
The Steps In Securing a Commercial Construction Loan
- Know What Type of Loan You Need: knowing the type of loan you need can save time and speed up the overall process. Depending on the type of project, you need funding for options. It can include land development loans, mini perm loans, interim construction loans, takeout loans, and A&D (acquisition and development) loans.
- Submit a Request: the next step in the loan process is to submit a loan request to a commercial lending bank. A lot of work is done before you even take this step. A proper business plan with a focused goal and the steps to meet this goal is critical to making the most of your loan and reducing expenses. Short-term and long-term financing options are also considered during this step in the process as different projects have different financial needs.
- Underwriting:after the initial approval, the next step is the more detailed underwriting process. This is the step where the project, the budget, financial capacity, and local market are all given careful review. Documentation during this step can include financial statements, tax returns, written project plans, the project’s earning potential, any supporting documentation, and more.
- Signing The Document:once a commercial construction loan has been approved and reviewed, the next step is finalizing the agreement. The bank will issue an official binding commitment for review and signing. This highly detailed documentation is a binding contract for the loan and leads to the final step the closing of the loan.
- The Closing and Finalization:once a commercial construction loan is reviewed, agreed upon, and signed, you move into the closing step. This step can be quite detailed and involve a lot of documentation, checklists, and legal review. In general, the closing is handled by your lawyer, the bank’s lawyer, and you as the lender.
- Receiving Funds:when a commercial loan is approved, typically you receive a part of the loan during the closing to cover previously paid costs. Finally, the loan is disbursed to your business monthly to cover costs incurred or amounts requested for business activity. Costs are sent by your developers and other hired parties to the bank, who then verifies this information and issues payment.
Final Thoughts
Commercial construction loans cover several projects, such as land development, building construction for home development and business projects, redevelopment of existing property, bridge construction, and more. Commercial construction loans help realize these large projects and provide the capital needed to make them happen. A well-planned and visualized project can turn the initial loan into a broader business success.
