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Financing the construction of a building will likely be one of the most significant investments that you will make in a lifetime. And that's precisely why entrepreneurs should first carefully assess their needs and ensure a lender is involved in the process as early as possible.
A bank advisor can help you determine the affordability of your project, how much money you'll need from start to finish, as well the right financing solutions best suited to your specific needs. It helps to start with a good business plan so that you gain the confidence of your potential lender by identifying realistic revenue projections and demonstrating that you can handle this scope of project without endangering your company's financial health.
Naturally, you'll be shopping around for attractive interest rates. However, be vigilant about limiting yourself to the lowest rates on the market, terms and conditions are equally important. Some types of financing may cost you more in the short-term but may be better suited to your long-term needs.
Here are some financing options:
Bridge financing
The most common financing in the commercial lending market is bridge financing offered by chartered banks. Generally, bridge financing is short-term financing extended to a company using existing assets as collateral. Your financial strength determines the amount you'll be allotted. Here's an example of how a bridge loan is used: you've just bought land and you want to erect a commercial building. Your bank is not interested in financing the actual construction because of the higher risk involved. In this case, a bridge loan would enable you to finance the construction period. Once you've completed the building, you'll need a commercial mortgage.
Term financing
This type of financing can be used to construct new premises, expand your existing building, overhaul a plant or replenish working capital depleted by past construction costs. The specific eligibility criteria varies from one institution to another, so be sure that you check with your representative. Generally speaking, mortgages are amortized over 15 or 20 years. Your mortgage may also require a current appraisal and environmental report.
The advantage of BDC term financing, for example, is that you are given one loan which can fund your construction project from start to finish. The loan can even cover initial costs to plan your project, assess your different options and design your space. This type of financing can come with floating or fixed interest rates and flexible repayment terms.
While you're planning your construction or acquisition project, a consultant can help you take advantage of the opportunity to improve your production line, plant layout or update your property according to the latest environmental standards.
Government programs
You may want to take advantage of specific government programs that provide financing for building construction projects that generate new jobs. If this applies to you, check if your area is covered by one of the economic development agencies set up by Industry Canada (the Atlantic provinces, Quebec, Northern Ontario, and Western Canada).
If you are in the tourism industry, the Canadian Tourism Commission, a consortium of the principle public and private players in the tourism industry, offers various support programs for development projects.
Programs for your particular industry
Visit Industry Canada's Strategis website to find out if there are specific government agencies or private institutions that provide financing related to specific industries. The Sources of Financing section contains a search tool to find organizations that might be able to help you. You specify your province, the purpose of the financing being sought (select Business Improvements/Renovations), your business sector, the amount of financing required, and the type of financing (government or private). After providing this information, you will obtain a list of private organizations and governments offering programs that may be suitable for your needs. While you will not necessarily obtain a complete list of sources, the results of your Strategis search should prove more than helpful.
In some cases, given their knowledge of regional industries, some financial institutions, particularly Caisses Populaires and Credit Unions are used to dealing with industry-specific financing.
Specific programs for energy efficiency funding
Natural Resources Canada offers an energy efficiency program to encourage the design and construction of new, energy-efficient commercial, institutional and multi-unit residential buildings and facilities. The Energy Efficiency in New Buildings Program provides design assistance and funding of up to $60,000 for eligible organizations based on building energy savings.
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