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Yes, getting financing from a bank is going to result in lower costs financing as bank rates are prime plus for a construction mortgage loan.

But low rates are associated with low risk, so to qualify, the bank is going to put you through the ringer to make sure the risk the bank would be exposing itself to is minimual.  In order to accomplish this satisfactory assessment, the borrower can be required to generate very detailed budgets and related time lines with all budgetary items supported with vendor or supplier quotes.

Once a commercial mortgage for construction financing gets approved, the fun is only getting started.  As the project progresses and construction draws are required, the bank will hire a third party appraiser to go to the project site and assess the level of completion and the amount of work remaining to complete.

These appraisers tend to be conservative by nature, and definitely don’t want to get on the wrong side of the bank that hires them, so they are famous for overstating the cost of what is left to complete, requiring the banker to cut back on the draw request.  When this happens, the borrower is now left scrambling to find another source of money to pay the bills and keep the project on track.

This is where project management and cash flow management are critical in making sure that everything is completed on schedule and that there is very little undone work when an appraiser comes to do an assessment.

This assessment process of work completed is a real wild card process when financing construction projects and definitely give you some grey hair.