Commercial Construction Contractor | LTV and Commercial Construction Lending
Commercial construction loans are a difficult sell to lenders. That is because they represent an idea, not an execution. Lenders may want to finance commercial construction contractor loans knowing the profit potential, but they also know that until the building is finished, there is no revenue and no guarantee of success.
However, before any profitable building was created there was an investor that funded a commercial construction effort to create the property, and lenders know that there are going to be ADC projects that are worth financing. The question is how to prove to the lender that your loan is one of those worth financing.
It Starts With the Loan to Value Ratio (LTV)
Every decision you make with your construction project plays a role in lending – including the commercial construction contractor you choose to build it. But LTV plays perhaps the biggest role of all. LTV is the amount of the loan compared to the value of the property. For example:
- Construction costs $1,000,000
- Property will be full and valued at $2,000,000
- LTV would be 50% (costs/property valuation)
When buying a traditional commercial property the LTV is kept low by either finding an amazing deal or providing at least a 20% down payment. Often the down payment is important because it also shows lenders you have your own investment in the project. With commercial construction lending, however, a low cost to develop with a high property valuation may be enough to provide you with a strong LTV.
While the maximum LTV differs by both lenders and industries (some buildings, like healthcare, require a much lower LTV to receive funding), LTV is still the most important number to lenders. If you can prove using unbiased analysts that your property will be worth well above construction costs once occupied, you are far more likely to receive funding.
At CRE Lender, our role is to take your information and find ways to get you the funding you seek:
- We submit your information in underwriting-ready format to appropriate lenders.
- We work with you through the process in order to get you results.
Funding for construction projects is difficult enough to find given the risks to the lender. But with CRE Lender, we’ll do whatever it takes to see who is available and the rates they can offer you for your commercial construction contractor loan. Sign up with CRE Lender today and get started with your project in 45 days or less.
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