How Do Commercial Construction Loans Work?

Last updated on February 2nd, 2024 at 06:49 pm

June 30, 2022
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Commercial construction loans work on a draw schedule. This means funds are released when agreed-upon milestones are met. After these are completed, the lender will usually have an inspector check and make sure the parameters are met. You only pay interest on the amount you’ve received from the lender to date.

Commercial Construction Loan Terms You Need to Know:

Draw schedule – This outlines the dates when the lender releases partial payments.

Loan Term Sheet – This typically outlines the terms and conditions of the loan with the information the lender has.

Hard money lenders – These are private lenders. These loans are approved more quickly and they’re more willing to take on riskier projects. This means the interest rate will likely be much higher.

Traditional lenders – These are going to be typical bank lenders. The interest rate will probably be lower than a hard money lender. However, it will most likely take longer for your commercial construction loan to be approved.

Why Take Out a Commercial Construction Loan?

Commercial Construction Loans are great for businesses that can’t afford the costs of construction projects outright. You can use them to purchase equipment and materials, expand your facility, hire and train employees, and even overcome damage or disaster expenses. It’s a great way to get what you need. Check with your lender because interest payments may only be required while the commercial construction project is still underway. 

Commercial Construction Loan Process

Step One: Connect with a lender – Because commercial construction loans are considered high risk, they’ll want detailed information regarding your business, industry, current projects, and projections for the future. The lender will ask for your balance sheets, bank statements, debt schedules, income statements, profit and loss statements, and tax returns. 

Step Two: Commercial construction loan underwriting process – The lender compiles more detailed information about the project. They’ll look at building plans, general contractor’s bids, cost projections, timelines, etc. They may ask you for further documents during this step as well.

Step Three: Loan approval – At this step, the lender will give you a commitment letter. This is a legally binding contract. 

Step Four: Loan agreement and closing – You’ll be given a closing checklist. The checklist gives details regarding what needs to be completed prior to the loan closing and before funding can begin. Additional funds are distributed based on the schedule of costs incurred in each stage of your commercial construction project.

The Diamond Standard

Diamond Contractors understand that this process can be complicated. As one of the best and most respected construction companies in Kansas City, we’re uniquely positioned to help you get ready for the process. Our commercial construction experts will give you timely and accurate estimates and deadlines. We will give you all of the important details required to talk with your lender and ultimately get what you need. We always strive to give you the Diamond Standard of excellence. Call us today to get your commercial construction project started today.


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