Capital for construction lendersground-up and rehab loans.

Why are construction loans hard to finance?

A ground-up construction loan funds land or a lot and a building that doesn’t exist yet, in draws, over a year or more. A heavy-rehab loan does the same for a property being rebuilt. That is why funding sources treat them carefully:

• Eligibility. One published bank warehouse program lists construction loans as ineligible collateral. Lenders that do finance construction often use separate construction lines with their own limits and inspection requirements.
• Draws and time. Capital goes out over the build and the loan is held until the borrower sells or refinances, often longer than a line’s dwell limits.
• Completion risk. Budget overruns and delays change the loan’s risk during its life, which line providers manage with eligibility tests and curtailments.

How do construction lenders fund more loans?

With direct capital placement, the capital partner reviews the full file, including the budget, plans, permits and draw process, and commits to the whole loan, including the construction holdback. It funds the initial advance at closing. You service the loan and coordinate inspections. Each draw is requested through Lender Capital and approved and funded by the capital partner from the holdback. See ground-up construction loans: risks and controls.

How do holdbacks work on a placed construction loan?

A holdback is the part of the loan amount set aside for construction or rehab and released in draws, not at closing. On a placed loan the capital partner commits to the full loan amount, including the holdback, at closing; the initial advance funds then, and the rest stays committed until each draw is approved. Your term sheet should show the initial advance, the holdback, any interest reserve and the draw terms, because the partner sizes its commitment from them.

How should a private lender manage construction draws?

Release money only against work completed and verified. A typical draw cycle: the borrower requests a draw against the line-item budget; a third-party or in-house inspector confirms the work in place; you check lien waivers and title where your process requires it; the draw is approved and funded; and the budget, remaining holdback and loan-to-cost are updated. On a loan placed through Lender Capital, you request each draw through the portal and the capital partner approves and funds it from the holdback. See construction draw management and the lender due diligence and underwriting checklist.

How do capital partners view construction risk?

Each capital partner sets its own criteria, and some exclude ground-up construction entirely. Those that fund it focus on completion risk: whether the budget and contingency are realistic, whether the builder and borrower have finished similar projects, how draws are controlled and inspected, and whether the exit works at the as-complete value. Expect them to review the land value and as-complete value, loan-to-cost, the budget and contingency, the builder’s and borrower’s experience, permits and plans, the draw schedule and inspections, the exit, title and builder’s risk insurance. Interest reserves and extension terms matter too, because delays are the most common way construction loans go wrong; see interest reserves on bridge and construction loans.

Rehab loans: what changes from ground-up?

Fix and flip and heavy-rehab loans also fund in draws, but the building already exists, so the as-is value supports part of the loan from day one and the budget is usually shorter. The same controls apply at a smaller scale: a line-item budget, draws against verified work and an exit at the after-repair value. See capital for fix and flip lenders.

Frequently asked questions

Do warehouse lines finance construction loans?

Some do, often through separate construction lines with their own limits and draw controls. Some bank programs exclude construction loans as collateral. Check each provider’s eligibility rules.

Who funds the construction draws on a placed loan?

On Lender Capital, the capital partner funds them: it commits to the whole loan, including the holdback, and funds each draw after inspection, once the lender requests it through Lender Capital and the partner approves.

Does Lender Capital place construction loans?

Yes: Lender Capital places first-lien, business-purpose ground-up construction loans, along with bridge, fix and flip and DSCR rental loans.