Tips for successful construction loan applications

How do you get a loan for your business’s construction project? What kind of down payment do you need? And how can you give yourself the best chance of qualifying for a construction loan?

ACU’s Business Financial Centre (BFC) has helped hundreds of Manitoba small and medium-sized organizations, including non-profits and schools, to secure construction loans—for a wide variety of projects.

We asked BFC’s Business Development Manager, Cameron MacAulay, to talk us through the process and give his tips for getting the construction or business loan you need.

The different types of construction loan projects

According to Cameron, there are four main types of projects relating to construction loans that the BFC team deals with. They range from renovating existing buildings to new construction or large-scale developments.

Four main types of construction projects

Residential home construction	ACU works with a variety of developers, from those who might build as few as two or three homes a year, to those building homes in multi-phased developments.
Owner-occupied construction projects	These are projects where the owner of a business builds a new premise. For example, a lawyer, dentist or retailer may build a brand new brick-and-mortar location in a new area of town to service their growing clientele.
Large construction projects	These could be apartment complexes, industrial warehouses or land development projects where servicing is being brought to bare land for the developer to sell or lease up.
Renovating existing properties	The BFC team also provides construction loans for major renovation work, for large residential or commercial properties.

How to qualify for a construction loan

“For any construction financing project, the borrower needs to do their due diligence,” Cameron recommends. “We want to be involved early in the process so we can work with the member to determine the best financing strategy.”

“The developer’s experience is the key to a successfully managed project” says Cameron. “Experience with similar projects reduces the risk in the eyes of the lender.”

Terms of commercial construction loans

“Development projects are a partnership between ACU and the member, and borrowers will need to demonstrate their investment into the project from their own resources, prior to ACU advancing funds,” Cameron continues. “The borrower will also need to demonstrate they can access additional capital should the project run over budget.”

The down payment amount differs per project and asset class. A piece of vacant farmland, for example, will need a higher down payment than a piece of land that is pre-zoned and comes complete with a development plan.

When it comes time to make payment, the BFC team will outline the terms and can help outline a plan. In most situations, developers will have to pay off the whole loan before taking profits from home sales. However, some situations allow borrowers to take a small percentage of the sale price of each home before the construction loan is paid off.

“Regarding timelines for construction loan repayment, these will vary from project to project,” says Cameron, adding that they do offer some flexibility and assistance during the initial loan period. “We can allow up to 24 months where the borrower pays just the interest to allow for construction and stabilization of the project.  We want to ensure we are setting our members up for success and ensure, as best we can, that the project will be successful.

How ACU’s BFC team help businesses secure construction loans

ACU’s BFC team has an in-depth knowledge of the construction community, which is also a huge advantage. “We understand the challenges of the local market and know how to overcome them,” says Cameron. “We also know the local contractors who can get the job done.”

Making decisions locally in Winnipeg, rather than in financial centres such as Toronto or Ottawa, helps facilitate the lending process. “By making decisions locally, we can adjust quickly should any last-minute changes arise,”

The BFC team is also committed to guiding its customers through the application process. “Expert advice is a major part of our service,” says Cameron. “We view ourselves as partners and have a vested interest in the success of our members.”

Getting started with your commercial construction loan

Cameron recommends that businesses prepare well in advance when interested in a construction loan, and most importantly, to start the conversation with ACU’s BFC team early in the process. “Even if you’re in the early stages, we can help guide you through all the steps and avoid potential obstacles.”

“Don’t start building with the confidence or assumption that you will get funding,” he continues. “Involve us early in the decision-making process and do as much preparation as possible to help avoid uncertainty or the risk of not qualifying down the line.”

Applying for a commercial construction loan can be a daunting and complicated process. However, partnering with ACU’s Business Financial Centre will be a valuable experience to help make your project a success.

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Get in touch to learn more about partnering with us on your business construction project. We can walk you through flexible lending options and provide valuable expertise to help get you started. Schedule an appointment with ACU’s BFC team today.