Construction Finance: A Conversation with Frost Bank


One of the first, and one of the most important, aspects of the construction process is Construction Financing. Financing anything can be a daunting process, especially something as large as a construction project. We spoke with Frost’s expert Commercial Banking team for their key insight into this key area.

What things need to be considered when seeking a commercial construction loan? 

Make sure you have a fully developed budget that includes property taxes, closing costs, appraisal/environmental assessments, and contingency. Contingency is critical, and banks want to see you have margin in your project for things you don’t/couldn’t anticipate. Have you engaged a general contractor?

When should I apply for construction financing? At the very beginning of the process or do I need to wait until I have full construction plans and schedule to apply? 

It never hurts to engage your loan officer early on. They can advise you on things the bank might require later in the process. Underwriting can’t start in earnest until we have a good budget and the land is either acquired or under contract.

Keep in mind that you will need an appraisal, which typically takes 5-6 weeks to complete. The bank will order the appraisal and the appraiser will need a good budget, plans & specs, and a survey of the land.

What information do I need to get in the general contractor’s estimate/bid?

The better and more specific your plans and specs are, the better your contractor’s estimate/bid will be.

What percentage of financing can applicants get or is most common?

This depends on the type of project and the credit supporting it. Owner-occupied loans will often qualify for 80%+ financing while investor real estate loans generally range from 60%-75%.

What happens if my budget or schedule run over?

This is where contingency comes in. Make sure you build a good portion in to your budget and communicate with your bank early and often. Delays happen and often for good reasons. At the first sign you expect your project might need additional funds or more time, consult with your loan officer.

Construction finance is something that can be daunting for anyone, whether it is your first construction project or your twentieth. In construction and commercial real estate it is one of the first steps in your construction journey, after Site Selection.

We would like to thank Jay Fry and Jacob Blain with Frost Bank for their contributions and insights to this article. We also spoke to the experts at Frost Bank to get their take on Dallas-Fort Worth’s Commercial Real Estate market in 2021 and Beyond.