A commercial construction loan is a loan taken out by a business or an individual, with the idea of building or rebuilding commercial property. These loans can be taken out with the intent of starting from scratch, building a completely new facility, or with the idea of simply fixing up or remodeling a property. A commercial construction loan can be very difficult to obtain, largely because these loans are so massive in scale. A commercial construction loan involves a lot of money, and banks don't want to take that large of a financial risk on just anybody, so you'll need to have fantastic credit in order to find a good commercial construction loan.
There are many different types of commercial construction loan, depending on what you want to do with the money. Here are a few examples:
1. Real Estate Purchase
A real estate purchase loan is a secured loan that can be used in a variety of different businesses. This loan uses the commercial property as collateral, in case the buyer doesn't end up with enough money to pay the loan back.
2. Joint Venture Financing
A joint venture tactic is much like a business partnership, with a few exceptions. The first exception is that your partner isn't your business partner; it's your bank or other lender. The second exception is that a joint venture only exists for one project, instead of for your own business. The idea of a joint venture is that your bank teams up with you on the project, so that they provide the funding, you provide the business, and you both reap the benefits. You share in the successes and failures of the project, which means you both have a strong reason to make the project work. This may not be the best idea for all projects, but it can be a very useful type of loan.
3. Construction Loan with Take-Out
This is a short-term loan, followed by a long-term loan. Essentially, this is a construction project that starts with short-term financing to get the job done. Once the job is done, long-term financing can be considered, and possibly used to help pay off the short-term loan as well. This kind of financing usually requires some landmark or milestone in order to move on from short- to long-term financing, a landmark like completion of the construction project.
4. Construction Mini Perm
This is a short-term financing solution designed to work toward long-term financing. A construction mini perm looks at trying to improve the credit history of a business just as it starts up. Business operations, credit card accounts, and corporate credit can all help a business to gain a good credit history, but it's impossible to gain any credit for your business until you've actually opened the business. A construction mini perm allows you to get your business started and going for just long enough to establish that credit, so you can find more long-term financing.
5. Acquisition and Developing Financing
Involving an SBA "Certified Development Company" can make this financing possible and profitable. By using this long-term financing option, you can work on expanding your business or upgrading aspects of it. This can be used only for acquiring or developing property, however; the money can't be used to handle internal finance problems.
6. Interim Loan
An interim loan is a short-term financing option you can use if you need to change locations. Let's say that you need to move your business from point A to point B. This can be used to allow you to purchase a nice spot of property at point B, while you can still run your business at point A. An interim loan gives you the money you need to buy that property before you sell what you already have.
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