How to Get a Commercial Construction Loan For Your Real Estate Company

The real estate market around the country (like all economic activities) was affected by the pandemic. However, to this day, the number of properties purchased in places like Denver Metro and Vail Valley has increased, compared to the same period in 2019, according to LIV Sotheby’s International Realty (LIV SIR).

While the scenario for 2021 presents challenges for economic recovery, real estate companies have opportunities that they can take advantage of by diversifying their market, for example, by investing in commercial buildings. Whether through remodeling or building space from the ground up for rent or sale to local businesses such as retail stores, offices, boutiques or any company that requires physical space.

Historically, investments in commercial property tend to be more profitable than residential, although they carry greater financial risk. But the main challenge for real estate companies is to raise capital to initiate in this area.

There are several types of financing that construction companies can access, with particular characteristics that can make the difference, such as the forms of loan release, commercial construction loans, payment terms and even, the guarantees they request.

Down below, we present some of the characteristics of these financings with recommendations to adequately control a loan, either to build or improve a commercial property.


Commercial Construction loans as an alternative for better project control

A loan of this type can be used for the purchase of some land or property, as well as for materials and payment of labor. The use of these financing applies to remodeling or building from scratch. Usually when we use a loan, we receive the required amount and it is paid periodically, but in the case of commercial construction loans, the rules are different.

From the loan application, a business plan and a construction or remodeling plan must be presented to the lending institution, this requirement is fundamental, because the money is given according to the stages of progress in the work. Until one phase is completed and supervision is approved, you will receive the following amount.

How affordable are the commercial construction loans rates?

Commercial construction loans rates vary between 4% and 12%, according to the applicant’s credit score. With the approval of the loan, extra fees are added that have to be fulfilled, among them, the cost for the review of the project, control of funds fees, guarantee fees and a down payment that varies between 10 and 30% of the amount borrowed.

Securities-Based Lending (SBL) as a Long-Term Deal

This financial product is based on obtaining a loan secured by, for example, a company’s assets, inventory, machinery or accounts receivable. These company assets provide greater certainty with respect to payment compliance and above all, as protection for the lending institution in case of default.

Usually, this type of loan is considered a long-term deal, since it can be renewed, according to the assets that can be used as collateral to invest in a new project. Unlike commercial construction loans rates, in Securities-Based Lending the interest is based on 30-day LIBOR.

This financing is recommended in cases of urgency, since they are approved faster, but only when there are assets to back it up.

Small Business Loans are an option to overcome the crisis

Small business loans, such as those offered by Camino Financial, are suitable for entrepreneurs who require complete independence to invest in a project. In this type of financing, the total amount is provided from the beginning and is adaptable to any particular need of your business.

In this case you do not risk your patrimony by starting this journey as a real estate entrepreneur. Remember, no matter what type of financing you apply for to build commercial properties, keep in mind the three pillars to successfully control your loan:

  1. Pay on time
  2. Do not use the loan for other purposes
  3. Have a plan and source of income for payment

Before deciding, analyze at least three alternatives that best suit your needs and payment possibilities, make a thorough review of the characteristics of each one. Whether you choose SBL, small business loan or commercial construction loans rates, the important thing is that they are tailored to your needs. Are you ready to take your real estate company to the next level?