What You Should Know About Commercial Construction Loans
Commercial construction loans are a special type of financing product designed to meet the requirements of contractors and property owners who are planning the construction or remodel of a building project. Also known as “spec” loans, commercial construction loans are often used for real estate market speculation projects intended for rental income or resale.
Read on to find out why a commercial construction loan for building new or renovating an existing property is a leveraged, property market asset value enhancement. In short, how a commercial construction loan can provide beneficial value.
Capital Projects are Commercial Profits
Construction activities ranging from office building remodeling to downtown revitalization plans and major commercial infrastructure developments, are capital projects requiring moderate to significant financial investment, in exchange for enterprise profits. Special project funds led by public interests, and designed to attract commercial capital to construction projects, are a common model of a public-private partnership funding scheme.
Business occupancy, rental income, and tax-deduction are other standard reasons for participating in commercial construction projects. Not surprisingly, capital projects are also the most common commercial construction loan application rationale given by contractors, developers, governments, and private property owners.
Why a Commercial Construction Loan?
A popular financial product for purposes of building rehabilitation, renovation, or removal, commercial construction loans provide the upfront liquidity a capital project requires to turn property investment into profit. A commercial construction loan permits a contractor, developer, property investor, or public-private partnership to realize its real estate investment, development project goals in a relatively short period of time.
Once approved for a commercial construction loan, a borrower can further capitalize on the original value of the property’s purchase price with a value-added, building or infrastructure installation or enhancement. In the event that the cost of capital ratio exceeds the initially expected allocations for a construction plan, a commercial construction loan is also a reliable source of financing to complete a project already underway.
Other Commercial Loan Products
With any commercial construction project comes additional costs associated with updates, equipment, and operations, which can contribute to business expenses. Loan specialists advise that financing business operations during or post building or other commercial construction projects with a consolidated commercial loan package, will cover up to the full range of expenses, in addition to any extra capital project expense.
Consolidation of a commercial construction loan package to cover the cost of building and related project expenses with a commercial loan injects more liquidity into a business upfront to offset operations costs associated with asset value creation. When the revenue expense to income ratio of a business is inverse in relation to profit, consolidation of commercial loan financing with a commercial construction loan enables a business to pay for:
· Equipment
· Facility Purchase
· Building Interior Updates
· Inventory
· Payroll
· Supplies
As with any construction project, changes to municipal code or other unforeseen circumstances, unexpected expenditures may arise. Consolidation of a commercial construction loan with other commercial loan financing is a solution that a business owner can select upfront.
A financing measure for mitigating any future expense associated with construction takes the guesswork out of capital project implementation. Maximize the income potential of a construction project with consolidated loan financing available from a federal government or commercial lender.
The Truth About SBA Lending
The U.S. federal Small Business Administration (SBA) is a business lending source that allows borrowers to apply for commercial loans for purposes of building and property purchase. SBA lending is subject to the same Internal Revenue Service (IRS) tax treatment of capital gains from real estate investment income, including basis point accountability. Tax exemption of a commercial construction loan is based on the total amount of the loan, plus the market price of the real property project assumed by the owner at time of purchase.
Review federal eligibility requirements to find out if your business, or the planned commercial construction project, meets the terms and conditions for SBA lending. If the secured SBA loan finance only covers part of the cost for a project, a recipient can fund the remainder with a commercial loan product.
Apply for a Commercial Construction Loan
Woodsboro Bank is the local, client devoted, community focused lender of choice for commercial loan financing in the Frederick County region. Whether planning an office building remodel or the construction of an entire neighborhood of commercial infrastructure, Woodsboro Bank can assist you with commercial construction loan financing. We offer commercial construction loans, commercial lines of credit, as well as a menu of specialized loan products for commercial auto purchase, property purchase, equipment financing, and inventory financing.
If you are in the market for a commercial loan, schedule an appointment with a Woodsboro Bank lending specialist to find out more about qualifying for a commercial loan.