Imagine this – you have been fortunate to own a business that’s not only doing well but is doing so great that there is no other way but to expand. And like any businessman in the planet, you’re raring to go. And why not? Not every business reaches this stage after all. So if your business is presented with this opportunity, the only expected action is to seize it, right?
But first off, you have to check your cash flow. Do you have the extra funds to finance your expansion project? Or are you prepared to take on all your savings in order to facilitate the construction of a new building that will pave the way for the business expansion?
These are just some of the questions that you need to ponder about when faced with a very important business decision. You would want to make sure that your expansion venture will not in any way jeopardize your existing operations. So how do you do that?
You either go to the bank and apply for a loan or seek assistance from financial institutions that offer various loan options, or find investors who are willing to infuse additional capital for the expansion. And between these two options, most businessmen would skip the latter option and take the first one.
In Canada, financing options for construction are a bit different from the usual financing arrangements offered in the United States or in other countries. Loan applicants who want to build can choose from either the Progress Draw Mortgage or Completion Mortgage.
In more specific terms, clients who opt for the Progress-Draw Mortgage agree to a loan with staggered disbursements throughout the building process. This means that funds are allocated per construction or building phase. This is aimed at making sure that no money is spent outside of the intended building activity since it requires passing inspection for each stage before the next disbursement.
On the other hand, a Completion Mortgage refers to a mortgage that requires a small down payment following the schedule on your contract but the mortgage amount is advanced to the builder only after the building is completed and turned over to the owner.
Typically, business people like yourself who plan to construct a new building or renovate an existing industrial or multi-res structure will start with Progress Draw mortgage and then converts it to a Completion mortgage upon possession of the building. This financing arrangement offers some benefits including:
- Getting assured that the funds are not used arbitrarily and only for the purpose they are allocated for, according to what is specified in the construction plan.
- Project completion is achieved with minimum delay. Funds are not released until the stage is completed as verified through inspection.
If this sounds too technical, you may want to consider consulting with a Toronto mortgage specialist who can walk you through the pros and cons of Construction Mortgage.
You will be able to arrive at an informed decision after your mortgage specialist gets to know your construction plans and the corresponding funding required.