7 Important Steps in the Commercial Construction Loan Process
April 21, 2022
When construction companies need funding to complete major projects and achieve long-term growth, commercial construction loans can help them reach their goals. Companies can use these types of loans to buy commercial real estate, construct buildings, or make improvements and additions to existing structures.
Construction loans differ from standard business loans in several ways, so it’s crucial for business owners to fully understand the loan process before they begin. Learn more about how our bank streamlines the commercial construction loan process for our customers in the Texas Gulf Coast region so that you can access the funds you need for your projects.
How to Complete the Commercial Construction Loan Process
Consider these seven important steps in the commercial construction loan process to ensure that your loan experience is as straightforward and efficient as possible.
1. Meet With Loan Officer
The first step for construction companies or general contractors in need of financing is to contact a loan officer to discuss all of the required documentation for construction loan requests. Our loan officers will also explain the structure of commercial construction loans and the overall underwriting process.
As part of our discussions, we will review the differences between commercial construction loans and standard business loans, focusing on these three areas:
– Fund disbursement. Instead of a traditional business loan where companies receive their full loan amount upfront, construction loan funds are disbursed on a draw schedule based on your company reaching specific construction milestones and timelines.
– Loan interest. With a typical business loan, funds are fully disbursed and borrowers then make payments towards principal and interest on the full loan amount. With construction loans, borrowers start making payments on interest first, solely based on the funds actually disbursed, and not the full approved loan amount.
– Repayment options. Once construction loan funds are fully disbursed at the end of the draw schedule, borrowers must then repay the full amount of the loan. Rather than pay a large lump sum at once, construction companies can instead apply for a commercial mortgage, which allows them to repay the full balance of the construction loan but with more favorable repayment terms and lower payments.
By meeting first with a loan officer, construction companies can have a clear understanding of the loan application process and the information needed to apply.
2. Provide Required Project Information
The second step of the commercial construction loan process is providing detailed information about the construction project itself. Construction loans require a variety of key documents and construction project information in order for loan officers to fully determine the feasibility of approving a loan.
Construction project documentation needed for review includes, but may not be limited to:
- Building plans and specs
- Detailed construction budgets
- Material and labor costs
- Construction timelines
- Approved zoning
- Third-party builder contracts
- Operating history
- Pro forma projections
With this information, loan officers can determine if the construction is a financeable project for our bank. We will also review all loan options available to you.
3. Provide Required Financial Information
Applicants for commercial construction loans should have three years of business tax returns, a current personal financial statement on all guarantors involved, and any other pertinent financial information that would be deemed helpful in our bank’s underwriting process.
Specific financial forms requested include but may not be limited to:
- Balance sheets
- Profit and loss statements
- Tax returns
- Bank statements
- Existing debt schedules
- Completed loan application
To expedite the loan review process, it is beneficial for applicants to provide as much financial information as possible to demonstrate creditworthiness and stability.
4. Application Review
The application process from start to finish – beginning with the initial request to our bank to underwriting to approval and eventually closing – should on average take approximately 30 days.
During this time, your company may be asked to provide additional information or project details or provide additional documentation to expedite the process.
5. Loan Approval
Because Texas Gulf Bank is a local, community-based bank, our application process is much faster and simpler than other banks in the area. As a result, loans approved for construction companies or general contractors can quickly be funded.
Our streamlined application process allows your company to gain access to approved funds earlier, meaning a faster start to your projects so that you can reach your business goals.
6. Creating Draw Schedules
Once funding is approved, borrowers will utilize their original budget submitted in the application process to support the creation of the draw schedule. We will either translate that information onto a standard AIA draw schedule or use a similar draw schedule template that is sensible and similar to the typical AIA draw template. This will form the schedule for when you can expect to receive fund disbursements.
The draw schedule allows construction companies and builders to pay third-party contractors when tasks such as plumbing, wiring, or painting are completed. This can help guarantee that contracted work is completed on time, ensuring that milestone goals are met along the way.
7. Fund Disbursement
Funds will be disbursed incrementally as work is completed, according to the construction benchmarks established in the draw schedule. The loan officer or a third-party inspector will typically perform an inspection that confirms that the requested work associated with that specific draw has been completed.
Obtain Construction Financing with Texas Gulf Bank
Navigating the construction loan application process can be complex and challenging for many companies, but with the right bank, it becomes a straightforward and positive experience.
With over 100 years of experience in partnering with companies across the Gulf Coast region, Texas Gulf Bank understands both the industry and financial needs of the business community. We carefully study local business and real estate market conditions to ensure that clients always have the most up-to-date information when planning their next construction project and submitting a loan application.
Our dedicated lending experts specialize in guiding companies through the commercial loan application process to ensure a positive and smooth lending experience. With exceptional customer service, competitive rates, and a streamlined application process, Texas Gulf Bank is the ideal choice for financing within the construction industry.
Contact Texas Gulf Bank today to get started on a commercial construction loan.
All loans subject to credit approval.