Commercial construction loans are typically arranged for specific phases of a construction project.

For instance, its not uncommon that a separate loan is required for each of land acquisition, site development, and the actual building construction.

Each stage of the project will likely increase the value of the overall project, providing a basis for future financing events.

But the main reason for requiring multiple types of commercial construction loans relates to the financing risk associated with each event with also impacts the cost of construction related financing.

Another way of looking at this is that there is no guarantee that a construction project will advance from phase to phase on a timely basis, or at all. So for each financing event, there is typically a short timeline to completion and a completion of value added work or at least clarity as to the value of the project once borrowed funds are invested.

For the lender that is prepared to extend funding for the land purchase, the lender is making a borrowing decision based on the current market value of the land and if development work does not proceed immediately or at all, the borrower has a clear view of the resale market for that project.

Same line of thought applies to someone providing land servicing and site development financing. Not only are they well versed in the draw management requirements of this type of funding, but also all the regulatory requirements that need to be in place prior to any work being done. And once the borrowed funds have been invested in the project, the market value will have increased and provide a broader range of exit strategies to the lender. But at that point of completion, there is still no guarantee to a lender that the building phase will progress any time soon or at all, so once again, financing tends to be arranged on a phasing of the work basis.

This also allows lenders to be extended into a project for a shorter period of time, and even if a lender is prepared to fund multiple phases, its not uncommon that the construction mortgage gets rewritten to pay out the existing debt and provide for the work required in the next stage with rates and terms associated with the risk of the next step.

The key point here is that the coordination of commercial construction loans among different phases of a project can be considerable and difficult to manage.

As a result, you would be well advised to be working with an experienced construction mortgage broker to not only source the funds when required, but to also set up a fully integrated financing strategy for the whole project so the builder, developer, or property owner can seamlessly move from one phase to the next without financing delays.

A construction mortgage broker is also invaluable during the construction project with helping both sides complete the borrower and lender requirements as well as being involved in the facilitation of solutions to any problems that may occur with the financing arranged and the related cash flow management.

Click Here To Speak With Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Commercial Construction Loan Options

The post Commercial Constructon Loans first appeared on Ontario Construction Loans And Mortgage Financing.

Commercial construction financing is typically arranged for a specific stage of a construction project.

For instance, most commercial projects have two or more stages of development and each can have their own financing requirement.

An example would be where the project first requires financing to acquire the land. Once proper zoning and permitting is in place, the project would move to site development and from there move into building construction. Once the project is completed, a take out mortgage would likely be required if the project was being retained by the owner, or by a purchaser wishing to acquire the completed project.

Each of these stages, mostly because of timing, will require their own unique commercial construction financing facility.

And while the same property is used to secure the different construction loans or construction related loans, each incremental financing requirement may end up repaying the previous one, or there may be more than one charge against the property, provided there is enough value in the real estate to carry additional debt.

As a project goes along, the value will increase, which provides more security for additional lending required at each successive project phase.

For each new commercial construction loan acquired, there may also need to be an equity injection required in order to keep the debt equity ratio in line for the lender or lenders.

Because of the multi phase aspect of most commercial projects, its important that all commercial construction financing facilities are aligned so there is a seamless transition from one to another during the project life.

The more the entire commercial construction financing is planned out in advance, the less headaches and cash flow issues for the project and project owners and managers.

Further, the commercial construction loan draw process tends to longer and more difficult to manage as compared to a residential home build, so its also important that each construction financing facility is well aligned with the project cash flow and timelines.

If you are in search commercial construction financing for a project you are planning out, or one that you are in the middle of, I suggest that you give me a call so we can go over your requirements together and discuss relevant commercial construction loan options that can meet your needs.

Click Here To Speak With Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Options

The post Commercial Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.