Construction loan
A short-term loan for building or renovating a property, paid out in stages as work is done and usually refinanced at completion.
What a construction loan is
A construction loan finances ground-up building, major renovation or redevelopment of a property. Instead of paying out the full amount at closing, the lender releases funds in draws as the project hits milestones. When work finishes, the loan is typically repaid with a permanent commercial real estate loan or a sale.
How it works
The lender approves a budget and schedule, then an inspector checks progress before each draw. Borrowers usually pay interest only on funds drawn, sometimes from an interest reserve. Lenders size the loan against cost and projected value, and test projected income with measures like debt service coverage ratio (DSCR).
- 01 · APPROVE The lender reviews plans, budget, borrower experience and projected value.
- 02 · DRAW Funds are released in stages after inspections confirm the work.
- 03 · CONVERT At completion, the loan converts to permanent financing or is repaid.
When businesses use it
- Developers building multifamily, retail, office or industrial projects
- Owners renovating or repositioning an existing building
- Investors buying land or partly vacant property to redevelop
- Projects funded by banks or private credit lenders, alone or in syndications
Cross River originates and services construction and bridge loans for ground-up construction, renovation, land acquisition and partly or fully vacant properties. Construction loans fund in draws tied to building milestones and can convert to permanent financing at completion. See construction lending at Cross River.