Commercial construction loans are designed to help cover the costs of building a new structure on an undeveloped site. This can include industrial and retail developments or larger residential projects like townhouses and apartment buildings. Loans for commercial construction generally have shorter terms and higher interest rates compared to personal loans or mortgages.

Construction business loans are structured to match the length of the construction cycle. This will vary depending on the unique circumstances and scope of each construction project, but typically it will be from six months through to 18 months for larger commercial property developments. The projected value of the completed project forms the basis of the construction loan. A loan-to-value ratio (LVR) of 65% is typical, however this may be extended to minimise the amount of equity required.

Construction projects can be broken down into ‘hard’ costs and ‘soft’ costs. Hard costs are directly related to the actual building process including equipment, materials, and labour. Soft costs are all the other associated expenses to complete the project like permits, plans, inspections and approvals. Typically around 80% of the hard costs will be covered by a commercial construction loan while developers can also look for a mezzanine or stretched debt facility to include the soft costs.

Most commercial construction loans give the borrower access to funds progressively based on a draw schedule for each stage of construction. These stages are usually known as base, frame, lock-up, fixing and completion. ​You’ll only pay interest on the amount that is drawn down at each stage, rather than the entire loan. Once the project is finished, the borrower will need to repay the balance of the construction funding or refinance the loan, such as with a residual stock facility.

One of the most common reasons cited for commercial construction projects failing is due to cash flow difficulties. HCP offers fast approvals for commercial construction finance to help you deliver your projects.

Banks can take two or three months and even then you might still not be approved for construction funding. HCP’s quick turnarounds within two weeks are a significant point of difference, particularly when construction costs are rising. If a developer executes the build contract with a builder now, they want to deliver the project now because materials will be only more expensive in another six months.

Banks were overcommitted to construction funding pre-GFC. That event and others since, such as tighter APRA regulations and Covid-19, have seen traditional lenders dramatically reduce their appetite for construction project finance. Banks don’t want to be funding 12-month construction business loans because they don’t generate the same revenue as 30-year home loans. This is why HoldenCAPITAL Partners has become a popular finance option for developers as a specialist non-bank lender.

Many of our clients have had long-term relationships with banks, but they now understand the benefits of using a non-bank lender for commercial construction loans. HCP works alongside property developers by providing reliable and flexible construction finance to help them grow their business and develop a pipeline of projects. Capital is made available across the full risk spectrum from senior debt levels through mezzanine finance to preferred equity.

Whether you need solutions for commercial construction finance in Brisbane, Sydney, Melbourne or anywhere throughout Australia, HCP is ready to assist. Since 2017, our experienced team has completed loan facilities exceeding $150 million across some 40+ projects. Our funding capacity has grown and we are now providing land and construction loans up to $15 million. Submit your scenario for construction project finance today to get express funding from HoldenCAPITAL Partners.