Types of Commercial Construction Loans

With a variety of options available for financing commercial construction, it may get a little confusing to keep everything straight.

While there are several options to choose from, the financing for commercial property can sometimes be tough to receive if there is no current cash flow that proves the loan can be paid back.

 Look at the most common types of construction loans your can available apply for:

Land Development Loan

A land development loan can be obtained with undeveloped (or raw) land that has to be made construction-ready.

In order to make the land into a construction-ready site, it may require water or power lines, as well as the installation of a sewer line.

Acquisition and Development Loan

If the raw land is ready to be developed or already is developed but requires improvements, an acquisition and development loan is something you qualify for. 

An acquisition and development loan covers the costs of purchasing the land as well as any improvements that the infrastructure needs prior to the development being finished.

Mini Perm Loan

A mini-perm loan is a temporary loan obtained through commercial banks. It is used for settling substantial construction loans on projects that will produce an outcome once completed.

Once three (to five) years of generating income pass, the mini-perm loan is replaced with long-term financing.

Takeout Loan

This type of loan provides financing on projects that already have a short-term construction loan. A lot of construction loan lenders require that you secure a takeout loan before the short-term loan is granted.

Interim Construction Loan

This loan helps to pay for construction materials and labor. Interim loans are valid for up to 36 months and are settled when a long-term mortgage is in place.

Crowdfunding

Crowdfunding helps to unite small investors to pool funds for specific projects. Instead of going to a bank to get a loan for your commercial construction project, you can sign up with a crowdfunding platform in order to raise the necessary funds for your project.

This type of funding is becoming mainstream, and more people are raising money for their small projects this way.