Getting a construction loan can be more complex than most other types of loans, even for construction companies. Financial institutions often require a lot of information and requirements because of the fact that their collateral is often not in existence until after the construction project has been completed (a building, home, ect). One important part of most construction loans are the ancillary agreements, which identify how certain things must be done throughout the course of the construction project. The following are some common examples of ancillary agreements for construction loans.
Construction Loan Agreement
This agreement will go over the main details of the construction loan, including what the loan will be used for, how much it will be for, and other common details. Providing the lender with information about where the construction is taking place, what type of project it is, what its purpose will be, and other relevant information will help them evaluate risk. In addition, it will give them a timeline and other information on how to measure progress on the project, which is important for ensuring repayment.
Many construction loans are issued in small amounts as things progress. A loan for $1 million, for example, may be spread out over the course of the project. The first installment of the loan could be received for paying for the initial materials and labor, the second installment for completing the infrastructure of the project, and so on. This type of ancillary agreement helps the lender understand the timeline better, and also reduces further risk.
Construction Supervision Agreement
Many lenders will require that a construction company has a trusted supervisor on site to ensure things are progressing as planned. This supervisor may be an employee of the lender or a trusted third party. The supervision ancillary agreement will identify who will be doing the supervising, what role they will have, and any other relevant details.
Design Certification Agreement
If the full design of the project has not yet been completed, there may be an ancillary agreement related to this important aspect of the project. A loan may be contingent on having the project design approved by an assigned design certifier.
Ancillary agreements are an important, but often complex, part of a construction project. Having an attorney write up or review the agreements can help ensure everything is set up properly before any documents are signed. Contact Florida Construction Law Group to go over your construction loan needs and get everything handled properly.