Obtaining A Commercial Construction Loan for Your Business
There are many reasons a loan for commercial construction may be necessary. Maybe you’re ready to own your own business or you’re finally expanding and purchased the land next door. Whatever the reason, obtaining a commercial construction loan first is going to make the process a whole lot easier. But where do you begin? How does the loan process work?
Getting Started – The first step to obtaining a commercial construction loan is to gather the paperwork for any loan you may be considering. Aside from the expected loan application, there can sometimes be a lot more paperwork to present to the lender. You’ll need to create an initial business plan that shows what the business is, how it works, and how it will generate income. Make sure to fully explain how this new building addition will help bring in the income you desire. Then, present the lender with information on how much the construction project is estimated to cost. You can get these numbers from the different contractors needed to get the job done such as an electrician, plumber, painter, etc. After getting an estimate from each contractor you’ll be able to see a rough estimate of how much your overall project should cost. Lastly, prepare all of the documents needed to show the lender your personal and businesses financial statement. You’ll need your credit score and your businesses credit score, past tax returns for both you and your business, personal earnings as well as the businesses earnings, etc. The lender needs to be able to see financial stability so they can be sure they’re making the right choice by lending you what you need. Once all of your paperwork is finished, you do have the chance to select which lender to go with. But keep in mind if you are able to apply for a secured loan or if you’ll need to apply for an unsecured loan. A borrower with a secured loan will most likely be granted a lower interest rate due to collateral that is presented. Without collateral, the loan could be unsecured and rates are typically much higher.
Selecting Your Lender: Luckily for this loan process, there are many different lender options to consider. You could get a loan from a Federal Small Business Administration, a credit union, a bank, or even a private investor. As you gather all of your paperwork, do extensive research on each option. Each lender requires different things and they all offer different things as well. One lender might offer a higher amount of money but at a higher interest rate while another may offer a low interest rate but not as much money. Some offer more secured loans while others may not. It’s important to research each option before making a decision so you can know which lender will be best for you and your business. Once you’ve made your decision and selected a lender, start the application process. You’re now one step closer to getting that loan.
The Review: Once the proper paperwork is presented and the required applications are filled out, the lender will review everything in order to decide if they wish to grant the loan. They will review things like why the borrower wishes to take out a loan in the first place, the business plan, if they think the loan will be secure enough or not, the businesses potential, etc. If they feel they need more information before the loan can be granted, they can ask for whatever they need.
Approval: After the application and all of the required paperwork is reviewed thoroughly, the lender will make a decision whether to grant the loan or not. In the chance the loan is granted, you and the lender will be able to start discussing more in depth details about the loan. You can then start a payment plan to figure out at what rate you’ll be able to make your payments. Once it’s all set in stone, you are ready to start construction on your new and exciting business venture.
If the lender approves a loan, they will provide the borrower with all information about the specific terms of the loan itself, including the payment plan and interest rates. Commercial construction loans are usually short-term loans with a different repayment plan than other standard loans, so it is important to read the terms carefully and to thoroughly understand the specific terms of the repayment plan.
Once approved, discuss loan details and get started