There are basically three different sources of commercial construction financing.[flashvideo file=http://jwredosept.s3.amazonaws.com/09.19.2012.commercial.construction.loan.1b-1.mp4 image=http://www.ontarioconstructionloans.ca/wp-content/uploads/2012/10/commercial.construction.loans_.jpg width=500 height=299 /] The lowest cost source comes from banks and institutional lenders where the construction project size is typically $500,000 and above. The lower cost lenders are also lower risk lenders, so their requirements for commercial projects will be the most difficult to cover off as well.
The second source for commercial construction financing is from quasi institutional lenders or sub prime lenders such as income funds, hedge funds, and different equity funds.
The advantage of this group is that many can provide scalable financing to cover off larger projects while also having more straight forward lending/funding criteria to meet. The cost of financing is higher than at a bank, but there can be benefits that come with the higher cost related to the application process and the draw advance process.
The third source for commercial builds is from private lending sources which can include individuals, syndicates, and mortgage investment corporations. Once again, the cost of financing is going to be higher, but the related red tape and hoops and loops to get approved and have funds advanced can be considerably lower as well. Depending on the private lending source, there can also be a cap in terms of the funds they are prepared to put into any one particular project with the maximum for many private lenders being between $1,000,000 and $2,000,000.
The common element with all three categories of lender is that relevant sources within these categories will have a focus on commercial construction financing and have an appetite for certain types of construction, deal size, and location.
For bank or institutional construction lenders, you’re going to need considerable lead time to get something in place where the other two groups of lenders tend to be able to get a deal approved faster.
Draw administration also tends to be more complex, and even unpredictable at times, from a bank or institutional lender as compared to sub prime lenders and private lenders.
With conventional lending sources, there can be delays in draw advances when completing the necessary requirements prior to an advance being made, and the draw advances can also be reduced at times if there is a discrepancy between the project management assessment of the work completed and remaining, and that provided by a third party appraiser.
One of the key points here is that its extremely important to understand the requirements and processes of each lending category as well as any individual lender so that you can make a clear decision as to which type of commercial construction loan is going to be the best fit for your project.
And within each category of lender its going to be just as important to focus in on highly relevant lenders for your particular project that are currently in a position to fund your deal.
Its not uncommon for construction lenders to be at their lending capacity at certain times for some or all deals, so its going to be important to understand what is going on in the market, who is in a position to fund your deal, and which lenders funding criteria you are going to be able to meet in the time you have to work with.
One of the best ways to locate and secure commercial construction loans in a timely manner is by working with a construction mortgage broker who can accurately assess your needs and provide relevant options for your consideration.
If you have a commercial build you’re planning or are in the in the middle of where construction financing is required, I suggest that you give me a call so we can go through your situation together and discuss different strategies for getting the capital you’re looking for.