Construction Loan
Construction loan is a short term loan to pay for the construction of commercial buildings. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan.
Construction loan commitments are somewhat more detailed and have more conditions than commitments for ordinary permanent loans, therefore it is useful to start with construction loans in learning about loan commitments. If you understand a construction loan commitment, understanding a permanent loan commitment will come easily. The lender’s risks and concerns in a construction loan situation are very different from those in a permanent loan situation, because the full security for the loan does not yet exist, and the loan is going to be disbursed over time rather than in a lump sum up front.
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