If you are looking to secure a loan for your next commercial construction project, your lender will need to conduct a commercial construction loan appraisal before approving your application. Therefore, if you want to secure approval, you will need to understand the appraisal process and ensure that your project meets all the requirements. 

How Does an Appraisal Work in Commercial Construction Loans

The appraisal process can seem intimidating and complex at first, but if you know all the steps to take, and just take them one by one, you should not encounter any problems. Your commercial construction loan will provide the financing you need either to build your new commercial property, or carry out expansions and improvements on your existing one. It can help cover costs including land acquisition, contractor fees, building materials, and permits.

The appraisal process is intended to help assure your lender that your construction project is one that is worth investing in. The process can take anywhere between two and four weeks - sometimes a little longer, and consists of several steps.

Steps of the Appraisal Process for Commercial Construction Loans

The steps of the appraisal process are as follows:

1. Analyzing the breakdown of costs and specifications: Before you apply for your loan, you should put together a detailed breakdown of the estimated costs, in light of the specifications of the project. The materials and labor required should be provided in an itemized list, alongside your plans for the project. The more detail you provide, the better equipped your appraiser will be to reach a decision.
2. Value estimation: Next, the appraiser will estimate the value of your new or upgraded commercial property. There are three ways of doing this. They could calculate a value based on the costs of the project, as listed in the breakdown provided in the step above. This is called the cost approach. Another approach would be to compare the value of the planned property with those of similar ones in the area, known as a value comparison. The third option is the income approach, which takes into account the projected income you expect to produce on the property.
3. Credibility analysis: With these costs and projected figures in mind, the appraiser will then assess the credibility of the project. Your costs, the value of the property, and your projected income, together with your history and creditworthiness, are all taken into account.  

What Happens After an Appraisal?

Once the appraisal is completed, your lender will study its findings and determine the actual amount it is prepared to lend you for the project. This amount is usually the lesser amount between 80% of the property’s value and the maximum amount you are qualified to borrow. 

Tips for Business Owners: Ensuring a Smooth Appraisal Process

You will want to ensure that your commercial construction loan application has what it takes to pass through the appraisal process with flying colors. To increase your chances of approval, keep these tips in mind:

• Check your credit score before you apply. A good credit rating is essential for approval.
• Be willing and able to show that your business has the ability to service your debt and repay your loan.
• Make sure your income statements, tax filings and other financial documents are up to date.

As long as your project plans are thorough and accurate, and you can show that you have good credit and the capacity to repay the loan, you should not have problems having your application approved. Be ready to provide whatever information your appraiser asks for.

At Consumer National Bank, we can provide the financing you need to complete your next commercial construction project. Contact us to find out more about the application and construction loan appraisal process.