When your business needs to construct a new building, it will need to choose between one of several types of loans that are available. You'll need to weigh the pros and cons to determine which loan will be the best for your business.
Construction Mortgage Loans and Term Loans
A construction mortgage loan is structured so that a portion of the costs of the construction are paid by the lender and another portion of the loan is paid by you as a developer. Your funds are released as a series of payments known as "draws." After each draw, the lender will usually require an inspection. You will have to pay interest on the funds you use. This is an alternative to a term loan, which is where you are paid in a single lump sum. With the term loan, you then pay back the interest on the lump sum.
Land Development Loans
When you have purchased raw land, you may need to obtain a land development loan. The raw land can be subdivided and sold as a series of parcels for both residential and commercial use. Another option is an acquisition and development loan. This loan is needed when raw land needs to be developed or when the land has already been partially developed, but more improvements are needed. This loan covers both the cost of acquiring the land and the cost for the improvements that are needed.
Short-Term and Long-Term Loans
Short-term financing is used to fund the construction and lease-up portion of a construction project. In some cases, you may be required to secure a takeout loan before you are then allowed to secure a short-term loan. Long-term permanent financing is more suitable for when a project achieves stabilization. It covers up to the market level of occupancy, and you must then take out the construction loan for long-term financing.
Mini-Perm Loans
Oftentimes, the bank will combine both loans into one in the form of a construction and mini-perm loan. The mini-perm is a form of financing that takes out a construction loan that is shorter in duration than the traditional permanent financing. The mini-perm is used to pay off the construction loan. The mini-perm is designed to provide an operating history before refinancing in the permanent market.
Interim Loan
You may need an interim construction loan to pay for labor until the project is completed. This type of loan is settled after a mortgage is put in place. Each of these loans has their place, and by knowing what is available, you will be able to make the best decision for your business.
For more information, contact a local company that offers loans, like LCNB National Bank.
Share1 October 2018
Adoption is a beautiful thing. Raising a child someone else had is a completely unselfish act of love. Do you want to adopt a newborn in the near future but are afraid you won’t have the necessary funds to do so? Consider meeting with an experienced financial adviser. This professional can sit down with you and recommend viable fundraising options. For instance, you might want to take out a loan. Or you may wish to sign up for a grant. Obtaining a tax credit is also an alternative. On this blog, I hope you will discover effective tips to help you raise money for an upcoming adoption.