Construction Sourcing and Financing

Construction Loans & Financing

Small Business Owner’s Guide to Construction Loans

Introduction:

Considering construction financing With nearly 700,000 employers and more than 7 million employees (according to 2020 ACG data), the Canadian. construction industry is a thriving business. Private construction spending reached almost 975 billion dollars last year, with new construction forecast to reach over 1.53 trillion dollars by 2022.

If you own a small construction or contracting business, you understand the combination of excitement and volatility of the marketplace over the past decade and the future. As a construction business owner faced with the challenges of seasonality, competition, and spontaneous opportunities for growth, you could also benefit from understanding the value of having access to capital for financing your business. Construction business loans are one financing solution to keep on your radar. In this guide, we’ll discuss how construction loans work, the types of construction loans available, common ways to use construction loans, and how to apply for a construction loan.

exective planning

65%

CORPORATE ANALYSIS

90%

BUSINESS OPTIMIZATION

50%

THE TAX MANAGEMENT

70%

What are construction loans?

A construction loan is a type of bank-issued short-term financing

Created for the specific purpose of financing a new home or other real estate project. A traditional mortgage, also called a permanent loan, will help you buy an existing house. However, if you need to build a new house from the ground up, especially if you also need to purchase the raw land, that’s where a construction loan can help.

How do construction loans work?

The loan can be applied for by anyone who is investing their time and money in construction or related expenses. An individual homeowner, a contractor, or a small business owner can use construction loans to finance their construction project. If you already own the land, the equity that you have in that property can be used as your down payment for your construction loan. Many borrowers ask how a construction loan turns into a mortgage. After the house is complete and the term of the loan ends (usually only one year), the borrower can refinance the construction loan into a permanent mortgage. Alternatively, the borrower can apply for a new loan (often called and “end loan”) to pay off the construction loan.

Does the borrower make monthly payments on a construction loan?

Yes, however interest payments on this loan might only be required while the construction project is still underway. Unlike a lump sum loan, construction loans are similar to a line of credit, so interest is based only on the actual amount you borrow to complete each portion of a project rather than all at once. Some construction loans may require the balance to be paid off entirely by the time the project is complete. More than just for the actual building, a construction loan can also be used to pay for equipment used in construction, building materials, or for hiring employees.