Construction Finance

Construction finance refers to the financial arrangements that are put in place to fund the construction of a building or other type of infrastructure. This can include the financing of materials, labor, and other costs associated with the construction project.

There are a number of terms that are commonly used in the context of construction finance. Some of these terms include:

Construction loan: A type of loan that is used to finance the construction of a building or other type of infrastructure. Construction loans are typically short-term loans that are repaid once the construction project is complete.

Hard cost: The cost of materials, labor, and other tangible items that are necessary to complete a construction project.

Soft cost: The cost of non-tangible items that are necessary to complete a construction project, such as permits, fees, and insurance.

Draw: A payment made by the lender to the borrower during the construction process. Draws are typically made in installments as the construction project progresses, and are used to pay for materials, labor, and other costs associated with the project.

Retainage: A percentage of the construction cost that is held back by the owner until the construction project is complete. Retainage is often used as a way to ensure that the construction project is completed to the owner's satisfaction.

Change order: A document that outlines any changes or modifications to the original construction contract. Change orders can include additional work, changes to the scope of the project, or changes to the schedule or timeline.

Completion bond: A type of insurance that protects the owner of the construction project against the risk of the contractor failing to complete the project as contracted. Completion bonds are often required by lenders as a condition of financing a construction project.

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