Your business is thriving. Congratulations! However, with a growing business means a need for more staff, possibly more inventory, and—gasp—more space. How to proceed from here? 

You have several options when it comes to expanding: 

  1. You can move to a new location. While this seems like the obvious choice, it has a handful of drawbacks. Firstly, existing spaces may not be right for your business’ needs. You may need a place with either foot traffic, storage, or service areas. Finding the right spot within your price-range with limited issues is totally doable, but can be somewhat tricky. 
  2. You can build. Haven’t you ever wanted to have a say in your business’ building? Well, with commercial construction, the power is yours. Do you love where you are? You can likely build onto your existing structure. Love the location, but not thrilled about the building itself? Demolish it and construct the facility you want. Not thrilled with the building, location, and having trouble finding an existing spot you like? You can build somewhere else as well! Whoa, so many options. 

If you opted for some version of #2, there’s a good chance you’re going to need a commercial construction loan. 

But what exactly is a commercial construction loan? 

A commercial construction loan is money borrowed towards the building a business-related property. These borrowed funds can be used for a new facility, remodeling, adding onto an existing location, or land to expand. 

The Difference Between Commercial Construction Loan & Commercial Mortgage

You may be asking, “but if this building is new to my company, shouldn’t I be seeking a commercial mortgage?” You’d think so, but no. If you’re renovating your existing facility or building a new commercial structure, you will need a commercial construction loan. 

What is the difference between a construction loan and a mortgage? 

If you’re building a new facility, you’d think that a mortgage is in order. This is actually where a construction loan is more appropriate. Unlike a mortgage, which is one lump payment for a single transaction, a construction loan better fits the phase-like nature of a construction project, somewhat acting as a substantial line of credit while the project is being built or renovated. Construction loans are also shorter-term than a mortgage—sometimes ranging only a year or so. A benefit of these loans is that the borrower only pays interest on funds borrowed as they’re borrowed.

Following the complete commercial construction, instead of having one massive payment for the completed construction, this can be rolled into a commercial mortgage if the borrower so desires. One benefit of this arrangement is that the property can serve as collateral for more affordable payments in the future. 

Do you still have questions about commercial construction loans or other aspects of commercial construction? The friendly professionals from Cowen Construction in Tulsa, OK can certainly help.