Preparing for a Construction Loan for Medical Facilities

Preparing for a construction Loan for Medical Facilities
Construction Loans are the loans that are typically used to pay for the construction of a building. Once construction is completed the construction loan gets converted to a permanent loan. The permanent loan is guaranteed by a Mortgage which a legal document is specifying rights of the lender to take the property if payment is not made. It is important to work with the bank to assure that once the construction is completed that the details and contract for permanent financing is secured.

 

In order to qualify for a loan there are multiple requirements necessary to demonstrate the strength of the borrowers to finance and complete the project.

 

• Personal and Business Financial Information, see below
• Plans and Specifications of the Construction Project
• Estimate prepared by a licensed General Contractor
• An Appraisal of the property and the plans
• Title information about the property- A Title Report
• Hazardous Materials survey and report

Personal and Business financial information required is typically as shown below.

 

Business Financial Information

• Business Loan Application & Business Schedule of Debt Current Year Interim P&L and Balance Sheet
• 3 years Business Tax Returns
• Accounts Receivable and Accounts Payable aging report
• 3 months banking statements for your principal banking relationship include CD’s, Business Checking accounts, Savings accounts, etc.

• Personal Financial Statement for each owner
• Most Recent Brokerage/Bank statements
• 3 years Personal Federal Tax returns

The construction loan types and payment procedures may vary from bank to bank and based on your needs and the bank’s tailored agreement with you. Most Construction loans require you to pay a monthly interest on the loan. That interest rate is usually based upon the total amount drawn on the account. That amount gets raised each month of the construction with the highest rate at the end of the job. The interest is usually standard interest and not amortized. Many times that rate is tied to prime rate plus one or two percent.

 

It is important to note that Plans and Specifications are an upfront fee prior to obtaining a loan. Some have used a business line of credit to pay for plans. It is also important to make sure you have governing approvals in place as you do not want to go back to the bank for any adjustment on the loan.

 

One of the great ways that doctors can finance their building is using an SBA loan with a local bank loan combination. The following is advice from Lilly Canterbury of Wells Fargo.

 “Wells Fargo offers SBA 504 and 7a financing options for construction projects. The 504 is typical for ground up projects and the 7a for shell build-outs. 51% or more of total building square footage must be owner occupied; with the expectation that they will be expanding their business. Basically, banks want to be careful & very thorough on the expenses for the project and that the borrower can support the loan. A good tip is to have a budget with detailed cost breakdowns. Any major line item must be supported by a bid. Banks also want to know that the builder or General Contractor is credit worthy.”

The intent of this article is to aquaint you with some of the basics for the Construction Loan process. It is advised that you meet with several bankers and or loan brokers to aquaint you further with your specific needs.

 

 

 

 

 

Personal Financial Information