All you need to know about commercial construction loans
Commercial Construction Loans and Mortgages involve the building and construction of commercial, industrial and retail workspace. Commercial Construction Loans can be tailored for both owner builders and licensed builder loans.
What is the maximum LVR available for a commercial construction loan?
The maximum LVR allowable for a Commercial Construction Loan is 70%. This LVR limit can also be based on hard cost or end valuation. These 2 lending options differ between lenders and therefore one must be prudent when determining which option best meets their lending requirements.
Hard cost relates to the land and building/construction cost component. These 2 components are added together to bring a total hard cost value as they are tangible.
End valuation involves a lender advancing finance based on the final value of the proposed commercial, retail or industrial property. There are specific factors which must be met to allow this type of advance, such as not lending initially more than 70% of the land value.
Popular Commercial Loan Types
Frequently Asked Questions
As a general rule, you do not need to use a licensed builder to raise the finance for a Commercial Construction Mortgage. Therefore, you can raise the finance for a Commercial Construction Loan using both licensed and owner builder parameters. However, most lenders will prefer that a qualified and experienced licensed builder construct the property.
The interest rate for a commercial construction loan does differ between lenders who provide this type of facility. With some lenders the interest rate can be the same as a normal commercial property loan, whilst with others an additional interest rate margin can be charged.
Not all lenders fund commercial construction loans. This is because these loans are generally administered and handled by a construction loan team and some lenders do not have a specialised team that understands commercial construction. These loans are best funded by large banks like the big 7 and some regional banks. There are also a small handful of non-bank lenders who will fund these types of loans.
Most lenders will lend according to hard cost for a commercial construction loan, whilst a very small number of lenders will lend according to the end value of the commercial property for loan purposes.
Yes, it is possible to get a commercial construction loan using low doc policy. This loan type is restricted to a very small number of lenders and comes with slightly higher rates.
Yes, if a borrower had bad credit it is still possible to get a Commercial Construction Loan. This will come with a slightly higher rate and is only available by no more than 3-4 lenders.
For a Commercial Construction Loan, some lender will require a Quantity Surveyors (QS) Report whilst others will not. As a general rule, if the total loan amount being advanced was over one million dollars ($1m), then lenders will generally ask for a QS. The cost of the QS is generally paid for by the borrower.
Funds are advanced in a Commercial Construction Loan by way of progress payment claim. This is a claim put in by the borrower requesting funds from the Commercial Construction Loan to pay for specific works completed. This can come as an owner builder claim or licensed builder claim as per the building contract. The claim is to cover construction costs.
What types of properties are used for commercial construction loans?
The types of properties used for commercial construction loans are:
- Commercial property
- Industrial property
- Retail property
- Commercial office space
- Commercial office buildings
- Bulky goods centres
- Medical Centres
What name types can be used to finance Commercial Construction Loans?
The name types that lenders will approve for Commercial Construction Loans are:
- Personal name
- Company name
- Trust names
- Partnership name
- Business name
At Mortgage Providers we understand the Commercial Construction Loan process. Further we know which lenders offer the highest LVR coupled with the cheapest interest rate and best loan terms. To get the best quality Commercial Construction Loan that meets your needs give our team a call.