Commercial Construction Loan

A commercial construction loan is a financing vehicle to allow you to build or improve an existing real estate property. Construction loans can be short or long term loans. A short-term loan is called a construction mini-perm with a term of 3 to 5 years. A takeout loan is permanent financing that you acquire in order to repay the construction loan.

What Do Lenders Expect To See In Your Loan Proposal?

The first and one of the most important aspects of your proposal is whether or not your project makes “economic sense”? In other words, will your completed project produce enough profit to qualify for a takeout loan?

Most lenders will require a profit potential of at least 20% of the total project cost. Some lenders may actually require a slightly higher amount of profit in these tough economic times. Often the land value, if you own it free and clear, will cover your initial investment in the project.

Loan Underwriting Criteria For Commercial Construction Loans

A few years ago, these loans could be often obtained for up to 90% Loan-To-Value (LTV). Today, 60 to 65% or less are closer to the norm. If you have squeaky-clean credit and a strong financial statement, you may be able to get 70% LTV with an alternative lender.

The lender will also want to see a debt service coverage ratio of at least 1.25. What does that mean? This is just a fancy way of saying that the lender wants to make sure that the property will generate enough profit to cover the mortgage payments. The Net Operating Income (NOI) must be at least 1.25 times the mortgage principal and interest. In other words, the NOI must be 25% larger than the mortgage payment.

Your Financial Situation and Experience

The lender will review your *Curriculum vitae (CV) and also calculate your net worth-to-loan-size. Your net worth should be at least equal to the amount of the commercial construction loan. As you can see from the what most commercial lenders require, obtaining this kind of financing will require significant research and work on your part. You can apply here with with a simple one page initial application and save time and effort on your part.

*Curriculum vitae is Latin for “Course of Life”. A CV is similar to a resume but has greater detail. It will show your related experience to the project for which you are seeking funding as well as your work and employment experiences.

Fill out this short one-page form to begin the funding process commercial construction loan.

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