Commercial construction financing is vital whether you want to build, renovate, or expand your businesses. While constructing, you have to face various problems, including contractor disputes, permit delays, supply chain issues, etc. You may have various construction projects to complete, such as constructing a new office, increasing industrial facilities, retail space, or a warehouse. Finding dedicated construction financing is crucial to achieving your vision.
If you are planning to finance and complete your commercial construction, this article will benefit you. It is a complete guide to inform you about commercial construction financing, types of commercial finance, the benefits of it, how you will get this loan, etc.
What is Commercial Construction Financing?
Commercial construction financing is a short-term loan that generally covers areas such as labor, materials, land acquisition, and permits. This loan is suitable for construction companies, developers, or builders to build new commercial buildings or renovate existing ones. Once the construction is complete, the borrower must pay his loan or convert it into a long-term mortgage.
In Australia, it is a popular financing method among developers, investors, and business owners for constructing new buildings and expanding or renovating existing buildings.
Types of Commercial Construction Finance
In Australia, there are various types of commercial construction finance, including:
Construction to permanent loan
C2P loan or construction to permanent loan is a kind of loan that is a two-in-one financing option. At first, it starts with a short-term construction loan, then converts into a long-term mortgage loan once the construction is completed. The benefits of a C2P loan are that borrowers will pay the interest only when the construction is continuous. After the project is completed c2p will turn into a permanent traditional mortgage loan. Borrowers can repay the loan within 15 to 30 years with interest and the main amount of the loan.
Short-term construction loan
This kind of loan covers the cost of construction and its time-bound is 12 to 36 months. This type of construction loan is suitable for real estate investors who want to sell their property once the construction is completed.
During the construction, borrowers need to pay only interest, which gives them freedom. This also helps them to manage their cash flow. As the construction is completed, a borrower must pay off the loan with interest or refinance it with a permanent mortgage.
Renovation loan
A renovation loan is well suited for those who want to renovate or upgrade their existing home rather than construct or build a new home. It covers the cost of purchasing or renovating a home. The amount of the loan depends on the expected value of the property after the renovation has been completed. This financing is flexible for both major and minor renovations.
Loans provided by the Australian Government
The Australian government offers various loans for small business construction with low interest and more flexibility.
Bridge Loans
It is a short-term loan provided before the long-term loan is provided. These loans charge higher interest but provide quick access to loans. These are temporary financing options designed to meet immediate needs.
Mezzanine Loans
This loan is suitable for developers as it gives additional loans beyond their traditional loan limits.
Benefits of Commercial Construction Financing
- Access to large capital for projects: Commercial construction finance enables one to start projects without waiting for cash reserves. It helps to start large projects such as constructing new offices, markets, retail stores, and manufacturing facilities.
- Flexible financing: Construction finance helps to draw finance as much as needed during construction which helps to maintain cash flow and not to borrow more than necessary.
- Customizable terms: Many commercial construction financing companies offer customizable terms to fill the needs of businesses. Whether you want a loan for building commercial property or a business loan for a construction company this loan perfectly suits your requirement.
- Low interest rates: Compared to other short-term finance, commercial construction finance charges lower interest rates, especially for businesses that possessed a strong credit profile in the past.
- Tax benefits: In Australia, interest on commercial construction loans may be tax-deductible.
- Project completion smoothly: As construction loans are provided very fast and without hassle, completing a project becomes very easy, fast, and smooth.
Qualifications for Commercial Construction Finance
To have this loan borrowers must have some qualifications eligible for commercial construction finance.
- Strong credit profile
Borrowers must present a strong credit profile both in their personal and professional lives to the lenders. These show a business person’s ability to repay the loan easily and builds trust.
- Revealing business plan
Lenders will show their interest in your business plan, estimated cost, budget, projected revenue, etc. Your smart description can have a better chance of getting the loan.
- Require down payment
Most lenders require borrowers to contribute 10-30% of the total project as a down payment. This reduces the risk of the lenders and enables borrowers to get a chance to have the loan.
- Collateral requirement
Lenders want collateral for security purposes.
- Construction information and budget
Lenders want your construction information and a clear timeline and budget outlining your expected cost, labor cost, materials, permit, etc.
- Experienced development team
A reliable, smart, and experienced team of project managers, architects, and contractors gives you a chance of getting a construction loan.
Steps to manage a commercial construction loan
- Assess your loan needs
- Research your suitable lenders
- Prepare your loan application
- Submit your application
- Get approval for loans and disbursement
Why choose PENNYWORTH FINANCE for your commercial construction finance?
At Pennyworth Finance, we provide commercial construction finance across Australia. We have years of experience, flexible loan options, an expert team, competitive interest rates, and a quick approval process so that your business stays on track. We are closely associated with developers, contractors, etc, that align with your project needs. We work for your services so that your business turns into reality.
Final words
Commercial construction finance plays a crucial role in construction projects. Whether you want to construct a new office, or apartment or renovate an existing one, a trustable lending company is highly required. For applicants’ convenience, loan type is categorized into many sectors. Select your suitable loan.
Pennyworth Finance knows borrowers’ needs. Our service is customer satisfaction-centric. We have dealt with many candidates before, so we are experts in the problems that a business may face. Not all lenders provide construction loans. Research lenders before taking a loan.