Budgeting for a construction loan is one of the most crucial factors to take into account when it comes to financing a commercial construction project. A construction loan is a brief loan used to pay for the expenses associated with constructing or remodeling a commercial property. We’ll walk you through the seven steps of creating a budget for a construction loan for commercial properties in this blog post.

1. Calculate the Project Cost: The cost of your project must be ascertained as the first step in creating a budget for a construction loan. This covers all costs related to building or renovating your commercial property, such as the price of supplies, labor, licenses, and any other necessary costs. It’s important to remember that the type of property you are building will affect how much your project costs. Construction costs for an office building will be different from those for a retail shopping center, for instance.
2. Determine the Required Loan Amount: You can determine the loan amount required to finance your project once you have determined its cost. Construction loans are typically calculated using the project cost plus an additional percentage for contingencies and builder profit. It’s important to remember that construction loans are frequently provided as a portion of the overall project cost, typically between 60 and 80%. Accordingly, if the estimated cost of your project is $1 million, you would need to borrow between $600,000 and $800,000 to pay for the loan.
3. Consider the down payment: The down payment should also be taken into account when planning your budget for a construction loan. In order to qualify for a construction loan, at least 20% of the project’s total cost must be put down. This means that you would require a down payment of at least $200,000 for a project with a projected cost of $1 million.
4. Examine various lenders: Researching various lenders comes next once you are certain of the loan amount required. Construction loans come in a variety of forms, including conventional bank loans, SBA loans, and loans from private lenders. Every loan type has a unique set of terms and conditions, so it’s crucial to compare your options and select the one that best meets your needs.
5. Create a budget: The next step is to create a budget once you are certain of the loan amount required and the type of loan you want to apply for. This budget needs to account for the cost of the loan as well as all costs related to building or remodeling your commercial property. It’s crucial to keep in mind that construction loans typically have variable interest rates, which means that the rate may change throughout the loan’s term. It’s critical to account for this in your spending plan and to be ready for potential interest rate increases.
6. Get a pre-approval: Getting pre-approved for a construction loan is the next step. This means that you must give the lender all required paperwork, such as your financial statements, tax returns, and a thorough project budget. After reviewing your application, the lender will give you a pre-approval for a specific loan amount.
7. Make a repayment plan: Planning for repayment is the last step in creating a budget for a construction loan. Construction loans typically have a short repayment term of between 12 and 24 months. Make sure you have enough cash flow to meet the repayment schedule and that you have a clear plan for how you will pay back the loan.

Finally, planning a construction loan budget for commercial properties is an essential step in the financing process. You can make sure you have the money needed to finish your construction project and that you are ready for the repayment process by figuring out the cost of your project, calculating the loan amount required, considering the down payment, looking into different lenders, creating a budget, getting pre-approval, and planning for repayment. To make sure that a construction loan fits your financial situation and that you are able to repay the loan on time, it is always important to speak with a financial advisor and conduct thorough research before applying. You can take the necessary actions to obtain the funding you require to complete your commercial construction project by following the steps listed here.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.