What to look for in a construction or commercial loan

First, the basics

A commercial or construction loan is, of course, still a loan. So the three main things you’d consider when taking out a personal loan still apply. These factors are:

1. Interest Rate
2. Term of Loan
3. Other Fees

As these basic topics are discussed elsewhere, we won’t elaborate further here. Instead, we’ll discuss the additional requirement of the commercial or construction loan.

The right lender for the right type of commercial/construction loan

Different financial institutions specialize in different types of loans. Some focus on mortgages or other real estate loans. Others focus on commercial lines of credit or chattel (equipment) loans.
Lenders also differ in their attitudes towards risk. Conservative lenders – especially the major banks – tend to be risk averse. Other lenders, particularly those specializing in commercial and construction loans, are more prepared to assume some risk.
If you know exactly what type of loan you need and have a realistic appraisal of your current financial situation including risk, you’re well on the way to picking the right type of commercial lender

Size of lender: too big or too small for your construction loan?

Unless your loan requirements are very large indeed, it’s unlikely that any commercial lender will be too small to grant your loan. Even if they are, they may be willing to “split” your construction loan with other commercial lenders.
It’s possible for lenders to be too big. Banks, for example, are sometimes too busy to devote much time to small commercial/construction loans. If you’re looking for “the personal touch”, a smaller lender may be preferred.

Knowledge of lender: experienced in granting commercial loans in your sector?

You need a lender with a good knowledge of your industry. If they understand how your business works, they’ll better understand what concerns them most: how they’ll be repaid. If they don’t understand your industry, be prepared to explain in detail how you plan to repay your commercial loan.

Trustworthiness of lender

Most players in the commercial and construction loan business are reputable. But certainly, shady outfits do exist… those willing to prey on those in desperate need of quick cash.
Check with your local Better Business Bureau. And ask your potential lender for references, preferably in your industry.

Summary: partnership in commercial/construction loans

The bottom line is that you’re looking for a lender who understands your business and will treat you like a partner. Ideally, you want someone who’ll help you through rough patches rather than increasing interest rates, hitting you with excessive fees or calling your loan the first time you make a late payment.

Start your loan request now!