How long does applying for a commercial construction loan take?
Before applying for a loan, the borrower typically spends time researching potential lenders, understanding their loan terms, and gathering necessary documents such as financial statements, project plans, permits, and contractor bids. It can take 1-2 weeks.
Once the borrower has selected a lender, the formal loan application process begins. This may involve completing application forms, providing documentation, and paying application fees. The lender will review the application and determine whether to proceed with underwriting (1-2 weeks).
After that, the lender evaluates the borrower's creditworthiness, the feasibility of the construction project, and the collateral being offered. This process can take anywhere from a couple of weeks to a couple of months, depending on the complexity of the project and the lender's internal processes.
Once the loan is conditionally approved, the borrower and lender work together to finalise the documents. This may involve legal review and negotiation of terms. The timeline for this step can vary depending on the responsiveness of both parties and any complexities in the transaction and can take 1-4 weeks. Signing the final documents and disbursing the loan funds can take 1-2 weeks.
Overall, the entire process from application to funding typically takes anywhere from a few weeks to several months.
Business loan calculations for 3 years (example)
| Amount, $ | Rate, % | Accrued %, $ |
| 20,000 | 9.05% | 2,790 |
| 20,000 | 11.05% | 3,407 |
| 20,000 | 13.05% | 4,024 |
| 50,000 | 9.15% | 7,053 |
| 50,000 | 11.15% | 8,595 |
| 50,000 | 13.15% | 10,136 |
| 200,000 | 9.25% | 28,521 |
| 200,000 | 11.25% | 34,688 |
| 200,000 | 13.25% | 40,854 |
| 500,000 | 9.35% | 72,073 |
| 500,000 | 11.39% | 87,759 |
| 500,000 | 13.35% | 102,906 |
How do I calculate my future borrowing expenses?
Start by estimating the total amount you need to borrow for the construction project. This should include all expenses related to land acquisition, construction materials, labour, permits, fees, contingencies, and any other associated costs.
Consult with your lender to determine the interest rate for the construction loan. This rate may be fixed or variable and can vary based on market conditions, your creditworthiness, and the lender's policies.
Construction loans typically have a relatively short term, ranging from six months to three years. You may make interest-only payments or incur other financing arrangements during this period. Determine the loan term that aligns with your project timeline and financial needs.
During the construction phase, you'll typically make interest-only payments on the loan's outstanding balance. Be aware of any fees associated with the loan, such as origination fees, processing fees, appraisal fees, closing costs, and other administrative charges.
It's also wise to include a contingency fund in your borrowing calculations to account for unexpected expenses or cost overruns during construction. A contingency of 5% to 10% of the total project cost is recommended.
What factors affect the approval of business construction loan applications?
Here are some key factors to consider:
- Credit History
- Business Financials
- Construction Project Feasibility
- Collateral
- Loan-to-Value Ratio (LTV)
- Business Plan
- Experience and Expertise
- Market Conditions
