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Commercial Construction Loans, Deconstructed

November 10, 2015

One type of commercial loan is a commercial construction loan. It is quite a complex type of commercial loan and not for someone to jump into without quite a bit of experience, without quite a bit of knowledge, or without a partner who is experienced.

Why is doing a commercial construction loan such a complex type of loan? It's because there are so many additional parts to a construction loan than a simple non-construction commercial loan such as multifamily or self-storage. And this means so many more skills that are needed having to do with building, and the business of new construction, as well as the much more involved process of qualifying for a construction loan.

Here are some of the additional skills needed having to do with building, and the business of new construction. But, first I will share that the very least you need is to be is knowledgeable about new construction, even if the only thing you do is hire a general contractor and others needed for the construction product. For example, can you pick a good reliable general contractor? There are good ones and bad ones. Do you know enough about new construction that you can supervise the general contractor?

If you are weak on your knowledge of new construction, and you don’t supervise well, you might find yourself on the back burner with major delays, and not as good quality of construction.

Even if the only thing you do is select a partner to work with, if you are not somewhat knowledgeable about new construction, you might miss a costly mistake your partner makes. Or, you might not understand a part of the project causing you to get into something you didn’t intend to.

Some skills needed having to do with building and the business of new construction:

  1. Supervise and inspect the work of those working on the construction project.
  2. Costing and estimating of materials.
  3. Costing and estimating of building costs.
  4. Negotiating skills.
  5. Assessing demand for the type of construction needed in the area. As an example, a particular city may not need another retail mall, but there is a shortage of apartment housing. And it so happens that there actually is a shortage of multifamily housing in the United States. Why is that?  Because in recent years, there have been quite a few people who have not been able to afford owning their own home. They need apartment housing, and in quite a few areas of the country there is such a shortage that many apartment complexes have waiting lists.
  6. Assessing the economy of the city where the construction project resides: Is the economy strong, or have a lot of people lost their job in the area? For example: a town that has lost a major plant that has gone out of business.
  7. Selecting a good architect and good construction plans.
  8. City construction requirements (permits, zoning, etc.)
  9. Legal requirements.
  10. An understanding of the process of commercial construction lending.
  11. Selecting the right commercial construction lender for you and your project.

Contact us to see if you qualify for our best multifamily, commercial, or bridge loan rates and terms. Keep in mind that one of our specialties is Commercial Construction Lending. Also, contact us if you would like to discuss your particular commercial lending needs, or if you have questions. Call or text 214-695-7310 or send an email to bruce@businessloanstore.com

To discover more about our loan products as well as rates and terms, go to apartmentloanstore.com.

Bruce Painter, Director of Marketing, Business Loan Store