Commercial construction loans are required when you want to develop any type of commercial real estate. A construction loan is a short-term loan, which is granted to developers in order to fund the any cost associated with the construction of the building. Once the construction is complete, a long-term or a permanent financing will replace the commercial construction loans.
There are a few things you need to know about getting commercial construction loans before you apply for one.
Here are some basic pointers on what you need to know in order to get commercial construction loans.
Choose a local lender/bank
Compared to other types of loans or mortgages, commercial construction loans don’t refer to your previous operating history. Due to this, it poses higher risks to the lenders. Choosing a local lender/bank that is near to your site will help your chances better because as the bank/lender will be more familiar with the local market around their vicinity. Your lender/bank needs to understand the local real estate before they can procure you with commercial construction loans.
Understand the underwriting process
The underwriting of a loan is the process where the decisions are made.
It’s important for you to understand how this works, what are you rights, what are you covered for, and other fine print details that will otherwise cost you a fortune in the future if you’re not aware of them beforehand.
After your application is submitted, the lender/bank will go through an internal processing where it will view your application to decide whether you will be approved or not. If your application is accepted, then you will be given a term sheet that states the T&C of the proposed loan. This term sheet is non-binding and once you have review it, negotiated any parts you feel necessary, and finally accept it, the bank/lender will then proceed with a full underwriting as well as the approval of your commercial construction loans.
Get the right attorney
Construction loans are more complicated than your normal loan so it’s highly advisable that you look for the right attorney to help you with any legal counsel. You attorney’s insight will be valuable as he or she is able to tell you if you’re getting the right deal requirements by advising you on everything you need to know.
Commercial construction loans agreement/closing
Once the lender/bank has produced the commitment letter, you will receive a closing checklist of all the documents you need to provide. After these have been verified, you will receive further notifications about the details of your loan and your attorney will assist you in understanding the agreement before your funds can be released.
As it is with any loan application, it’s wise to always keep a clean credit history whether or not your loan application will retrieve these histories. Speak to several banks/lenders before making your choice with commercial construction loans.