The Challenges of Getting Approved for a Commercial Construction Loan

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The Challenges of Getting Approved for a Commercial Construction Loan

25 May 2018
 Categories: Finance & Money, Blog


Commercial projects are generally a lot bigger in size and cost than residential projects, and the companies that build commercial projects typically need financing in order to make the projects happen. If you have plans to build any type of commercial building and need financing for it, you may want to apply for a commercial construction loan. Before you go to a lender to apply, you should realize that you might face the following challenges when trying to get approved for the loan.

Completing the Application Requirements

The first challenge you may face involves completing all the requirements the lender has with the application. The application process can be extremely lengthy and difficult, yet you will need to complete it accurately and thoroughly if you want to get approved for a commercial construction loan. Here are some of the steps you might have to take during this process:

Fill out the application forms—The lender will often begin this process by asking you to fill out application forms. There can be a lot of different ones you must fill out, and you should fill them out completely.

Submit a business plan—Most lenders will not issue money to build a project without a business plan. A business plan illustrates that you have researched the idea and have a clear plan that is guaranteed for success. The business plan should clearly show what you intend to do and how you plan on making money. This part of the requirement will help the lender determine if you will likely have the ability to repay the loan when you need to.

Provide financial statements—Part of the application process will also involve providing financial statements to the lender. These are primarily used to prove your creditworthiness, and you may need to provide a lot of different documents for this purpose.

Show the cost estimates—During this state, you will also need to show all the cost estimates for your project. You must also list all the subcontractors you will hire and proof of the work and costs for each of them.

These are a few of the things you will need to complete during the application process, and you should be prepared for this stage to take several months.

Proving that You Are Creditworthy

The second challenge people often face with commercial construction loans is proving that they are creditworthy. Because most businesses do not have credit scores and histories, the lender might need to prove that you are creditworthy. Submitting financial statements is one of the main ways you can prove this, but the lender may also want to check your credit and references as well. If the lender cannot verify that you are creditworthy, it will be very difficult to get the loan.

Finding a Final Loan Lender

Finally, you may face a challenge when it comes to transferring the loan from a construction loan to a final loan. Some lenders offer both construction loans and final loans, while other lenders may offer either one or the other. A construction loan is the type of loan you can use to finance a project while you are building it. When the project is complete, you must convert the construction loan into a final loan. The final loan is the loan you will have for the next 10 to 40 years, depending on how long you choose, and you will have to make payments on this. Some lenders that offer construction loans will only do so if the applicant has a final loan in place already.

If you would like to finance a project and need a loan to do so, you should contact a company that offers commercial construction loans. By talking to a loan officer, you can find out where to begin with applying for a loan like this.