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Alabama New Cosntruction Loans
New Construction Loans in Alabama
There could be many reasons why growing businesses want to expand. There are some business owners who want to own their own building so that they can stop paying rent, and there are others who might want to renovate their current building to meet the needs of their growing business.
Expansion may be necessary for success in Alabama, but it can be very costly to complete a new construction or renovation project. It could take thousands to millions of dollars to complete. Many business owners do not have the funds to pay for a construction/renovation project. Individuals in these circumstances may want to consider a new commercial construction loan in Alabama.
A Guide to New Commercial Construction Loans in Alabama
A commercial construction loan is used to finance a commercial construction or renovation project. It can pay to cover the cost of labor, land, expenses, materials.
Commercial construction loans shouldn’t be confused with commercial mortgages. A commercial mortgage is for business owners who want to buy an existing property. A commercial construction loan is for business owners who want to construct a new building or renovate their existing property in Alabama.
Commercial construction loans in Alabama are not like other loans. Traditional loans are made to disburse the total loan amount to the borrower in one large sum. After the borrower has received the funds, he or she is responsible for paying the balance of the loan. Other loans, such as commercial mortgages, will typically have a monthly payment period of 10 years or longer.
Borrowers who receive a commercial construction loan will not receive the total amount at once. Instead, the funds are disbursed throughout the construction project. When you take out a commercial construction loan, you and the lender will meet to decide on a draw schedule. A draw schedule sets milestones during the construction/renovation project. Once each milestone has been completed, a partial amount of the loan will be issued to the borrower. For instance, the first draw could be when the land is purchased, and the second draw may be when the foundation has been set. Before the funds are disbursed, most lenders will want to have an inspector visit the site to make certain the milestone has been completed. This cycle will continue until the project is complete.
Another difference between a traditional loan and a construction loan is how they are repaid. Commercial construction loans only require that the borrower pay interest on the funds that have been disbursed. For instance, if a borrower took out a commercial construction loan for $500,000, but he or she has only received $100,000 of the total loan amount, then the borrower will only be responsible for paying interest on the $100,000.
Once the project has been completed, and the full amount of the loan has been disbursed, the borrower can repay the loan in one balloon payment that will over the remaining balance, interest, and other fees. However, business owners who want a more affordable option may be able to quality for a commercial mortgage. A commercial mortgage will use the construction/renovation property as collateral. The funds from the commercial mortgage will be used to pay the balance of the commercial construction loan. With a commercial mortgage, the borrower will be able to make monthly payments over an extended period of time.
Would you like to know more about a new construction loan in Alabama? Our team at Delancey Street would be happy to provide you with further information about new construction loans in Alabama.