What is a construction loan and how can it benefit your business? Construction loans are a short-term financing option that can help you pay for construction costs when you build a new structure or add on to an existing structure. There are three big time benefits that will make it clear that this type of loan can do wonders for your business.
First, this type of financing option is beneficial because it is short-term. That means you will get the capital you need to complete your construction and then you will pay it back. This is beneficial for businesses because it gives you the breathing room you need, so you can get the money together to fund the project. With a business, there are a lot of expenses. You have to pay bills and fund projects. Sometimes the money isn’t quite there when you need it. A construction loan helps ensure you get the money when you need it, but doesn’t accrue a lot of interest because it is short-term.
Second, construction loans are beneficial because many lenders are now offering what is called a construction to permanent loan. This type of loan gives you the money you need for construction, and it gives you the time you need to pay it back. After the construction is finished, it transitions to a mortgage-like loan. This option is beneficial for those businesses that won’t have the capital in the necessary time frame with the short-term loan. This transitional option also helps you because it locks in the interest rate of the loan.
Finally, this type of loan is beneficial because of the scrutiny it puts your construction plan under. In order to qualify for the loan, you will have to give the bank a clear timeline of the construction and detailed plans. This means that you will get a more straightforward answer from the contractors. It can help motivate a builder to get the job done on time and in budget, especially if they are the ones holding the loan.
If you’re trying to construct a new structure or make an addition to an existing structure, you will likely need some capital to meet your goals. Construction loans offer you the perfect way to get the money you need for building materials, labor and the like. Work with a business banker to find out what kind of loan your business can qualify for. Make sure you understand all of the pros and cons before you choose what is right for your business.