Arkansas Commercial Construction Loan
If you are looking for a commercial construction loan for a
building or facility for your own company, you will not have an
income producing property. Your commercial construction loan will
be based on the merits of your business and the actual resale
value of the commercial property you are about to construct.
Normally construction financing works in two stages.
The first stage is called and “acquisition and development loan”
and provides funding for the purchase of the property. Mostly
lenders like to lend 50% on land . If the land is ready for
construction with approved plans as well as other improvements,
lenders can go higher, but they usually like to stay close to 50%
The second stage is the “construction loan”, and the amount that
you can borrow during the construction period is monitored via two
Two Things are looked at ”the value of the
land as it is ” and “the value of the completed structure”.
Normally, a person looks at a maximum of 75% loan-to-value for
This is the maximum you can borrow as a
function of the construction related expenses.
Obtaining commercial construction loans can be very daunting
investor investing for the first time. Commercial construction
loans are similar in many ways to private residential loans, but
differ enough to warrant a thorough review of the process before
proceeding for the first time.
If your commercial construction loan will be used to purchase or
construct a commercial property that is already income producing,
such as an apartment building, office or industrial building that
is rented out, your commercial construction loan will be based on
the current selling price (value) of the property and the
viability of paying back the loan based on the income it will
produce. Your commercial construction loan officer may also look
at the use of funds.
As a rule of thumb, commercial construction loan officers use the
60/40 rule when determining the net income on a commercial
property. Simply, 40% of the gross income is reasonably considered
to be net income. The balance constitutes the net operating
expenses. When applying for a commercial construction loan, it is
best to use these figures or explain in detail to your commercial
construction loan officer why your numbers are better or worse.