Commercial Remodel

Lenders will treat your loan request differently depending on the amount of money you need to complete your remodel. This threshold is typically around $200,000. For amounts $200,000 or less lenders may disburse the entire loan amount at closing. Borrowers find this convenient because they have the money in hand to complete the remodel without any monitoring.

Most commercial real estate remodeling loans require more money. Requests that exceed the threshold will be monitored just like construction loans. Lenders will release funds on an invoice basis or by a percent of completion. The lender will visit the site often to ensure the loan funds are being used to complete the process. Sometimes the lenders will issue a check directly to the subcontractors, while others will release the funds to the project manager to disburse. In any case there is a bit more due diligence involved.

When building your budget for the remodel you will want to include an interest reserve and a contingency. The interest reserve is used to pay the interest payments of the loan while the project is in construction. The contingency budget (normally 10% of the total project) is used for cost overruns and other unforeseen expenses. If you don’t use these funds you will have the option of drawing them or not whichever is more convenient. Some borrowers like to have the extra cash while others would rather have a smaller loan outstanding.

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