Is it possible to get a construction loan for a commercial project without having any money of your own?
A commercial project loans is a type of financing that is structured for the purpose of financing a construction package. This type of loan can be used by a small business owner, a contractor or a homeowner for construction and related expenses such as hiring employees, purchasing building materials or others.
How Do Commercial Project Loans Work?
The process of getting a commercial mortgage loan can be more challenging compared to other types of loan. Historically, lenders of this type of loan were almost always regional banks or the local community, but this has changed over the years. Today you can acquire this type of loan from certain insurance companies, specialty finance companies and national banks.
A development project can be financed in two ways, which can sometimes be combined. The first type if the short-term financing which releases funds for the lease up phase of the project and the construction. After the project has been completed and can be put up in the market for occupancy or leasing (in the case of real estate projects) the project can take up a longer term financing.
Basic Issues with Construction Loans
- A short-term construction loan can be acquired from some lenders without having any money and used to fund the construction of a new home or business premise. Construction project loans are considered high risk since the lender will finance the construction process from the beginning to the end. They therefore attract high interest rates.
- High collateral or security – while there are lenders who will offer a commercial project loan without any deposit, these lenders will require a large security or collateral. Regular lenders will ask for a 20-25 down payment of the total project cost.
- Rigorous application process-the application process for construction project loans is very demanding. Lenders usually ask for details of the construction project including the total project cost, the project timelines, cost of labor and materials and the floor plans.