South Dakota New Construction Loans
New Construction Loans in South Dakota
Many business owners reach a point where they need to expand to be successful. Some business owners want to own their own building instead of renting office space, and there are some who want to renovate their existing office.
While expansion is sometimes necessary for businesses, it is a costly project. Some commercial construction projects can take thousands to millions to complete. Since most business owners don’t have the assets to cover a construction project out of pocket, a new commercial construction loan could help them achieve their goals.
A Guide to Commercial Construction Loans
A commercial construction loan is for business owners and investors who want to renovate or construct a new building. You can use the funds from a commercial construction loan to pay for materials, labor, and other expenses.
Business owners who want to purchase a new property can get a commercial mortgage, but business owners who want to construct a new establishment or renovate an existing building should apply for a commercial construction loan.
A commercial construction is not like other loans. Traditional loans are designed so that the borrower gets the total loan amount in one payment. When the loan has been received, it is the borrowers responsibility to repay the loan. With most loans, borrowers will have a monthly repayment period that is at least 10 years.
Business owners who take out a commercial construction loan will not receive the full amount in one payment. With commercial construction loans, a borrower will meet with the lender to establish a draw schedule. A draw schedule sets milestones, and at the end of each milestone, a certain amount will be disbursed to the borrower. For instance, the first draw may take place when the land has been cleared for development, and the second draw may be when the foundation is laid. This process will continue until the construction or renovation project is finished.
Once each milestone is finished, lenders may have an inspector visit the construction or renovation site to make certain the work has been finished. When an inspector confirms completion of the milestone, the funds will then be issued to the borrower.
Commercial construction loans only require that borrowers pay interest on the amount that has been disbursed. For example, if an individual takes out a construction loan for $500,00, but he or she has only received $50,000 of the total loan amount, then the borrower will only pay interest on $50,000.
At the end of the construction/renovation project, the borrower can pay the remaining balance in one payment. However, business owners who don’t want to make one payment may have the option to take out a commercial mortgage. The funds from the commercial mortgage will be used to pay the balance of the construction loan. This allows a borrower to make monthly payments.
Eligibility Requirements for a Commercial Construction Loan
There are many factors that are taken into account for a commercial construction loan. Lenders will look at your credit scores. The ideal candidate for a commercial construction loan will be a low-risk borrower with a good credit score.
You should also have a low debt-to-income ratio. While it will vary based on each lender, most lenders want a debt-to-income ratio that is under 43%. In addition, a down payment may also be required. In most circumstances, lenders will ask for a down payment that is between 10% to 30% of the cost of the project.
If you want to learn more about new commercial construction loans in South Dakota, contact us at Delancey Street. Our team of professionals will be happy to provide you with further details about your commercial construction loan options in South Dakota.