How to Finance Large Ground up Construction Projects

by / Thursday, 06 July 2017 / Published in Financing Blog

You’re looking at a site that’s ready for a big transformation. The flat ground, gravel and sporadic weeds will soon become a place that only the mind’s eye can see. As your imagination sees how this new structure will fit into the surrounding landscape, you think of its potential to do good for the community. For many years to come, this place is going to be a hub for new jobs and the coming and going of automobiles, pedestrians and bicycles. But this project is no small potatoes; it’s going to require collaboration between an architect, landscape designer, engineers of various disciplines, a project manager and plenty of construction contractors and laborers working on the ground.

Ground up construction comes at a hefty price, but thankfully there are options for how to meet the cost and bring the dream to life. Here are a few of the most popular loan programs to break ground and start building.

The SBA 504 Program

With a 90 percent loan-to-cost ratio, the U.S. Small Business Administration provides a robust, low risk offering. These loans can be used for purchasing existing buildings, procuring land, making infrastructure improvements, buying HVAC equipment and the renovation of existing facilities. They can be used on specialty projects, such as hotels and storage facilities. Up to $25 million is available for ground up construction projects, pending approval of the business plan and meeting other eligibility requirements. Added incentives go to developers who employ environmentally-friendly features and methods, such as energy efficient windows and reclaimed building materials.

Bridge Financing

Because construction has many phases, a bridge loan can help during those early stages before you’ve been able to secure additional financing. Loan amounts start around $7 million, and they can be used for permitting, equipment, materials acquisition and other purposes. They tend to come with a favorable loan-to-cost ratio, better than those of traditional bank financing options.

Large Project Construction Financing

If cost is expected to exceed $50 million, this type of funding may be right for you. With an 85 percent loan-to-cost ratio, this type of loan uses what’s called mezzanine financing. These types of programs straddle the line between debt and equity financing and are structured to work along with the construction plan, allowing for payment plans that match the various project phases.

Each project is unique, and a ground up construction financing plan can be drafted to meet the specific requirements of your undertaking. The many advantages over traditional bank loans makes them popular with developers.