New Commercial Construction

New Commercial Construction loan requests can be a little tricky. It is important that you understand the risks lenders face so that you can mitigate them with your request. When pursuing a construction loan, keep the following topics in mind.

  • Have you accounted for potential budget over runs? Lenders will automatically assign a 5-10% contingency reserve for your loan request.
  • How well do you know your contractor? The bank will monitor progress and issue draws at the borrowers consent to the contractor; however, this is not a fool proof process. Make sure your contractor is credible and trustworthy. They could request a draw and not complete some of the work. Don’t rely on the bank alone to protect your risk.
  • Ask your lender about Mini-Perm loans. These loans have a construction draw period. Once construction is complete the loan automatically converts to permanent financing. This saves you time and money in origination fees because of the one time close.

Many lenders like construction financing. It tends to be a little more lucrative for them than other loan requests. Construction means risk to a lender and the borrower. Both must exercise caution as the project unfolds. In this economy, new commercial construction has slowed down; but there are still lenders out there hungry to fund the right projects.

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