How to Fund Your Property Build with a Construction Loan

As an entrepreneur, there comes a time when leasing commercial property may no longer be the right option. Whether you’re planning a salon, warehouse, boutique retail space, or entering the construction industry, owning your commercial property gives you more control. Financing a new build can be daunting; luckily, a construction loan can offer an effective solution.

Additionally, construction loans are a practical solution for first-time developers who want to build and own their own commercial property.

What Exactly Is a Construction Loan?

A construction loan, also called a building loan, is a joint loan that covers the cost of building and the mortgage after the building is finished.

Traditional building loans in South Africa often involve two phases: one loan to fund the construction, and another (with a new application and set of fees) that kicks in after building is complete. This option simplifies things. You sign one set of documents, lock in a fixed rate, and move straight into business once the project wraps up. It’s an all-in-one solution that saves time and protects your budget.

What is the Maximum Amount That Can be Borrowed?

According to Swoop Finance, the maximum loan amount typically falls between 50% and 60% of the property’s purchase price. However, in some cases, lenders may provide up to 100% financing for the build costs, provided the total loan amount doesn’t exceed 60-75% of the project’s estimated value upon completion.

Why More Entrepreneurs Are Choosing This Route

Here’s why this loan structure is becoming the go-to for savvy business owners:

1. You Save on Fees:

Closing once instead of twice means you avoid duplicate legal, admin, and processing costs.

2. It’s Less Hassle:

With only one approval process, you won’t need to requalify for finance halfway through your project.

3. Your Interest Rate is Locked In:

A fixed-rate building loan gives you cost certainty from day one. This helps you plan and budget with confidence.

4. You Get to Open Sooner:

There are no additional delays for a second loan to be approved. Once construction is done, you’re ready to move in and trade.

How to Apply: Step-by-Step Guide

If you’re ready to build your business premises, here’s what the process typically looks like:

Step 1: Check If You Qualify

Lenders will look at your personal and business credit history, cash flow, and overall financial health. The better your credit score, the better your chances (and terms).

Step 2: Secure the Land

Whether you’re buying vacant land or developing on an existing property, you’ll need ownership or long-term usage rights before applying.

Step 3: Finalise Your Plans

This includes architectural drawings, building quotes, permits, and a detailed budget. Most banks will want a comprehensive project plan before approving finance.

Step 4: Appoint a Reputable Builder

Only work with contractors who are registered, experienced, and ideally, familiar with commercial builds. Your lender may even insist on it.

Step 5: Approach the Right Lender

Submit your application to a bank, DFI, or specialist lender. Include your financials, business plan, and all project documentation.

Common Pitfalls to Watch Out For

Before you sign anything, keep these potential hiccups in mind:

1. Construction Delays

Things outside your control, like weather, material availability, or labour problems, can cause delays. Always include extra time and money in your budget to account for these unexpected setbacks.

2. Underestimating the Costs

One-time doesn’t mean cheap. Make sure you understand all the fees involved, including bank charges, legal costs, and insurance.

3. Poor Loan Structuring

If the repayment terms are not aligned with your cash flow, especially during the initial months of operation, it could lead to financial difficulties. Ensure your business will have enough breathing room. Furthermore, it’s essential to remember that construction loans typically don’t provide the full amount needed due to limitations on maximum funding amounts.

Understanding these risks upfront helps you avoid the classic building loan mistakes many first-timers make.

Where to Apply for a One-Time Construction Loan in South Africa?

There are a few options available to you for a one-time construction loan:

Major Banks: Standard Bank, FNB, Absa, and Nedbank all offer commercial property finance with construction loan options.

Development Finance Institutions (DFIs): The Industrial Development Corporation (IDC) is a national DFI ideal for industrial and manufacturing projects. Another DFI you can look at is the National Empowerment Fund (NEF), which supports black-owned businesses with a range of property and development loans.

Specialist Lenders: Companies like TUHF offer specialised commercialised funding for housing.