ALERT: BEWARE OF BANK IMPERSONATION CALLS, TEXTS AND EMAIL
Please note that the banking industry has observed a concerning rise in impersonation scams that aim to take over bank accounts and steal money using Zelle, ACH or wire. Before you provide any information to an email request, text or phone call, please make sure you know the identity of anyone requesting information or call our Client Care Center at 877-770-2262 for verification.
Construction Loan Banking Guide:
5 Tips for Choosing the Right Banking Partner
Written By
Lisa Kaskel
EVP, Regional Manager, LA Real Estate and Construction
When it comes to developing or renovating a commercial real estate project, securing the right construction loan is one of the most critical steps in the process.
Unlike traditional mortgages, construction loans are short-term, floating rate loans that facilitate acquisitions or already owned parcels slated for ground-up development or renovations. Because of their complexity, choosing the right banking partner can make or break your project.
In this comprehensive construction loan banking guide, we’ll walk you through five key tips to help you select a reliable, experienced and supportive financial institution for your construction financing needs.
What Is a Construction Loan?
A construction loan is short-term (2-3 years) interim financing used to fund the development of a multifamily or commercial property. These loans are typically interest-only during the construction period and convert into a traditional mortgage with a permanent lender once the project is completed and leased to stabilization.
Construction loans come with unique requirements and timelines, making it essential to work with a bank that specializes in these types of loans and understands the nuances involved.
Tip #1: Look for Construction Loan Experience and Expertise
Not all banks are equipped to handle construction loans. They require an understanding of construction risks and market feasibility, more oversight during the build, periodic inspections, draw schedules, and a deep understanding of construction challenges and regulations.
What to look for:
- A bank or lender that offers a dedicated construction loan program
- Loan officers with experience in underwriting and managing construction projects
- A Construction Disbursement Team that can quickly respond to, and fund, draw requests
- A track record of successful lending for similar project types
Ask your prospective banking partner how many construction loans they’ve handled in the past, and in which real estate sectors they specialize, including commercial, multifamily, industrial and/or or mixed-use developments.
Tip #2: Understand the Loan Terms and Flexibility
Construction loans differ widely from one bank to another. You’ll want a banking partner that offers transparent terms, reasonable fees and flexibility to accommodate changes in your development timeline or budget.
Key loan features to compare:
- Interest rates (fixed vs. variable)
- Loan-to-cost (LTC) and loan-to-value (LTV) ratios
- Length of the construction term, as well as additional term to season the property
- Draw schedules and disbursement procedures
- Conversion options to permanent financing
A good lender will walk you through these details and provide estimates or tools to help you forecast advances and inspections, and debt expectations post-construction. Additionally, a good lender will partner with you to understand your business plan and ultimate goal, to ensure that your interests are aligned with a loan that will facilitate your needs.
Tip #3: Evaluate the Draw Process and Disbursement Speed
Construction loans are disbursed in increments—known as draws—based on the completion of various stages of the project. Delays in receiving funds can stall your entire build.
Questions to ask:
- How long does it take to process and release a draw?
- Are there digital tools or portals for submitting draw requests?
- Is there a dedicated team for handling inspections and approvals?
Having a Construction Disbursement Team that is knowledgeable about construction regulations, insurance requirements, general contract types, retention, mechanics’ liens and title requirements will enable you to not only move through the process smoothly, but to resolve, together, any issues that may arise during the course of construction.
Tip #4: Assess the Bank’s Local Market Knowledge
A bank with strong local or regional ties can offer insights and services tailored to your market. They may also have established relationships with local developers, inspectors and appraisers.
Benefits of local banking partners:
- Faster and more thorough inspections
- In-depth knowledge of local permitting and zoning rules
- Personalized service and easier communication
- Partnership to help resolve potential issues that may arise during construction
While national lenders can be an option, working with a community bank or regional institution often means better responsiveness and support throughout the project. Local banks typically have a deeper understanding of the regional real estate market, faster decision-making processes and more flexible loan structures—making them a valuable partner when navigating the complexities of a construction loan.
Tip #5: Check Customer Reviews and Builder Recommendations
Feedback from past borrowers and builders provides valuable insight into how a bank performs in real-world construction scenarios. Delays, poor communication, or inflexible policies can derail a project—and reviews can help you spot red flags early.
What to research:
- Online reviews on Google, Yelp and BBB
- Testimonials or case studies on the bank’s website
- Developer and contractor recommendations
You can even ask the bank for references from previous construction loan clients. A reputable lender should be happy to connect you with satisfied customers.
Explore How Construction Financing Can Help Your Business
Securing a construction loan is more than just getting funding—it’s about partnering with a financial institution that supports your vision from blueprint to final build. With the right banking partner, you’ll enjoy a smoother process, more reliable disbursements and fewer surprises along the way.
Visit Banc of California’s Construction Loans & Financing to learn more about whether Banc of California is right for your business.
Bonus Tip: Screen Early
Many banks offer screening tools that can help you estimate how much you can borrow before you start designing your project. This step can help you budget accurately and avoid overextending your finances.
All credit products are subject to credit approval. Not an offer of credit.
CONNECT WITH A RELATIONSHIP MANAGER
COMPLETE THIS FORM OR CALL
877-770-BANC (2262)