Securing a Loan for Your Commercial Property Project

Jul 10, 2024

Understanding Commercial Property Loans

Building a commercial property requires substantial financing, and understanding the available loan options is crucial for successful project completion. Here’s an overview of the types of loans available, their requirements, and tips for securing financing for commercial property construction.

high rise buildings under gray sky

#### Types of Loans for Building Commercial Property

1. **Construction Loans**
   - **Purpose**: Specifically designed to finance the construction of a new commercial property.
   - **Features**: Short-term, typically 12 to 36 months, with interest-only payments during construction.
   - **Requirements**: Detailed construction plans, contractor agreements, and project timelines.

2. **SBA 504 Loans**
   - **Purpose**: Ideal for financing real estate and major fixed assets, including new construction.
   - **Features**: Long-term, fixed-rate financing with down payments as low as 10%.
   - **Requirements**: Project must create or retain jobs, and meet SBA size standards and other eligibility criteria.

3. **SBA 7(a) Loans**
   - **Purpose**: Versatile loan that can be used for construction, purchasing equipment, working capital, and more.
   - **Features**: Up to $5 million in financing with flexible terms.
   - **Requirements**: Strong credit history, business financials, and a solid business plan.

4. **Commercial Mortgages**
   - **Purpose**: Long-term financing for existing commercial properties but can be used for new construction in some cases.
   - **Features**: Longer repayment terms and competitive interest rates.
   - **Requirements**: Good credit, substantial down payment, and income verification.

5. **Bridge Loans**
   - **Purpose**: Short-term financing to bridge the gap until permanent financing is secured.
   - **Features**: Higher interest rates and shorter terms, typically 6 to 36 months.
   - **Requirements**: Detailed exit strategy for refinancing or sale.

6. **Hard Money Loans**
   - **Purpose**: Short-term, asset-based financing for projects that may not qualify for traditional loans.
   - **Features**: Higher interest rates and fees, with quick approval and funding.
   - **Requirements**: Significant equity in the property and a viable exit strategy.

#### Requirements for Construction Loans

1. **Detailed Construction Plan**
   - **Blueprints**: Architectural drawings and blueprints of the proposed building.
   - **Timeline**: Project timeline with key milestones.
   - **Budget**: Comprehensive budget including labor, materials, permits, and contingency funds.

2. **Contractor Agreements**
   - **General Contractor**: Signed agreement with a licensed general contractor.
   - **Subcontractors**: List of subcontractors involved in the project.

3. **Financial Documentation**
   - **Personal Financial Statements**: For all principals involved.
   - **Business Financials**: Profit and loss statements, balance sheets, and cash flow statements.
   - **Credit Reports**: Personal and business credit reports.

4. **Collateral**
   - **Property as Collateral**: The land and any existing structures used as collateral.
   - **Additional Assets**: Other assets may be required as additional collateral.

5. **Experience**
   - **Developer’s Experience**: Lenders prefer borrowers with a proven track record in real estate development.

#### Steps to Secure a Loan for Building Commercial Property

1. **Develop a Strong Business Plan**
   - **Executive Summary**: Overview of the project and its objectives.
   - **Market Analysis**: Research on the local real estate market and demand for the property type.
   - **Financial Projections**: Detailed financial projections, including expected income and expenses.

2. **Choose the Right Loan**
   - **Loan Type**: Select the loan type that best fits your project’s needs and your financial situation.
   - **Lender**: Research and compare lenders to find the best terms and rates.

3. **Prepare Documentation**
   - **Gather Required Documents**: Ensure all financial statements, credit reports, and construction plans are up to date.
   - **Organize Paperwork**: Compile all necessary documentation in a well-organized manner.

4. **Apply for the Loan**
   - **Submit Application**: Complete and submit the loan application with all required documentation.
   - **Follow Up**: Stay in contact with the lender and provide any additional information they request promptly.

5. **Close the Loan**
   - **Review Terms**: Carefully review the loan terms and conditions.
   - **Sign Agreement**: Sign the loan agreement and complete the closing process.
   - **Begin Construction**: Start the construction project according to the approved plans and timelines.

Business, black man and advisor consulting with paperwork, review report or portfolio documents. Teamwork, consultant and meeting for executive analysis, planning legal feedback or consultation notes

#### Conclusion

Securing a loan for building commercial property involves careful planning, thorough preparation, and selecting the right financing option. By understanding the types of loans available and their requirements, you can increase your chances of obtaining the necessary funds to successfully complete your commercial construction project.

At Atlantic Commercial Lending, we specialize in providing tailored financing solutions for commercial real estate projects. Contact us today to learn how we can help you secure the best loan for your commercial property construction needs.