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Construction loans

 Construction projects often change due to complications in the middle of their completion. This can greatly affect the project’s specific financial needs. Construction loans help contractors adjust to these complications and keep the project moving

What are Construction Loans?

Construction loans specifically help finance construction projects. If a builder were to take out a traditional loan, they would receive a lump sum before the project starts. This makes it difficult to adapt to any changes as they arise. On the other hand, a construction loan works specifically with the project in mind by breaking up funding into different segments. This means that the financing institution releases additional funds as they are needed. The release of funds directly correlates to the reaching of certain building milestones. This provides a great deal of flexibility while also keeping the builder from going over budget.

When applying for a construction loan, you will first need a construction plan, certified contractors and an exit strategy. This makes securing the financing the very last step so that you only take a loan for the amount you need. Construction loans can cover all financial obligations of the project. Funds can ever cover preliminary inspections. Three primary types of construction loans exist. To find the right one, talk to one of our loan brokers today and start building.

TERM LOAN

A term loan delivers short term financing for your project. The whole process of applying for to receiving the loan takes only a few days.

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TERM-TO-PERM Loan

For ongoing construction projects, consider Term-to-perm loans. These loans start as a kind of  short term financing option during construction before shifting into a long term loan once the project is completed.

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SBA

The Small Business Administration (SBA) backs loans specifically geared towards small businesses. These can also help finance construction projects. The SBA guarantees a lower interest rate for their loans.

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Construction Loans

Have big advantages

  • When considering a construction loan, keep these advantages in mind:
  • Pay back the interest during construction, not the principle amount
  • Get financing on vacant, owner-occupied and investment properties
  • Secure up to 90 percent of the required funds for your construction project

    • FAQs

    When are Construction Loans a Poor Fit?
    Despite their numerous advantages over traditional loans, construction will not work for everyone. For example, lenders and financial institutions will likely deny loan approval to applicants wishing to work as their own contractors. Planning and performing the construction project by yourself creates something of a conflict of interest in the eyes of the lender. So if you intend to pursue a construction loan, you will most likely need to hire an outside contractor.
    What do I need to qualify for a Construction Loan?

    When applying for a construction loan, expect to provide a detailed construction plan, proof of contractor certifications, and income verification for your business. A credit score of 680 or above is a typical requirement. If your credit score doesn’t match, we will help you find a lender that does.

    What is an LTC?

    LTC stands for loan-to-cost ratio. This is a common term in commercial real estate that measures the percent of the total cost of construction that the lender will finance. If the project will cost $100,000 to build and the lender will cover $70,000 the LTC is 70%.

    What are the interest rates on Construction Loans?

    Interest rates vary depending on the type of construction loan you have. The SBA regulates interest rates for 504 and 7(a) loans based on U.S. Treasury numbers. Private loans will have lower interest rates for businesses with higher credit scores.

    What Financing Fits You?

    It only takes a few minutes to find out exactly what your options are.

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