New York New Construction Loans

There are many reasons why business owners want to expand. There are some who are renting an office space and want a building of their own, and other business owners may want to expand their current office building.

While it may be necessary for business owners expand their businesses to reach new goals, this can be easier said than done. It is a costly project to construct a building or make renovations. Many construction projects cost thousands to millions of dollars to complete, and most growing businesses do not have the funds to dish out such an expense. Business owners in these situations may consider a construction loan.

What is a New York Commercial Construction Loan?
A construction loan is used to help a business owner cover the costs that are associated with the renovation of an existing building or the construction of a new building. The money from a commercial construction loan is typically used to purchase and develop land, pay for labor, and cover the cost of materials.

When to Consider a Commercial Construction Loan
A commercial mortgage is set up for business owners who want to purchase existing properties. However, a construction loan is made for business owners who want to construct a commercial building or renovate existing office space.

Commercial construction loans are not like other loans. With traditional loans, the borrower will be issued the loan in one lump sum. Once the loan has been disbursed, the borrower is then responsible for paying back the amount. Most loans have a fixed monthly payment that is at least 10 years.

With commercial loans, only partial funds are disbursed throughout the construction or renovation project. When a business owner gets a commercial loan, he or she will meet with the lender to establish a draw schedule. A draw schedule allows funds to be released to the borrower when project milestones are completed. For instance, the purchase of land may be the first draw, and the second draw may be when the building’s foundation has been poured. When each milestone is completed, lenders may have an inspector visit the construction/renovation site to make sure that the milestone is completed, which will authorize release of the next draw. This process will continue until the project is completed.

Another difference between a commercial loan and a traditional loan is the way they are repaid. With a commercial construction loan, you are only responsible for paying the interest on the money that has been disbursed. For instance, if you took out a commercial construction loan for 700,000, but you have only received $100,000 of the total loan, then you are only required to pay interest on the $100,000.

Most commercial construction loans are made so that the borrower only pays interest on the loan proceeds until the project is finished. Once the project is completed, the borrower can pay the principle balance in one lump payment. However, there is another option for those who don’t want to make one payment. A commercial mortgage uses the property as collateral and allows the borrower to pay back the commercial.

How You can Prepare for a New York Construction Loan
If you want to take out a New York commercial construction loan, then it can be helpful to prepare a business plan that outlines each step of the construction/renovation project. You can also put together a cost estimate plan that shows the lender what the cost of materials, labor, and other items will be.

If you have any questions about construction loans in New York, contact us at Delancey Street.

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