Construction Completion Financing: How to Fund a Project Already in Progress
A commercial real estate project can have a strong location, experienced ownership, and significant value at completion but still face a funding gap before construction is finished.
Material costs may rise. Change orders may increase the budget. An existing construction loan may mature. A lender may stop advancing funds if the project falls outside the original requirements.
When this happens, the project may need a new capital structure.
Construction completion financing is designed for projects already underway that require additional capital, replacement financing, or both.
What Is Construction Completion Financing?
Construction completion financing provides funds to finish a partially completed development.
The financing may refinance the existing construction loan, cover verified cost overruns, pay contractors, complete remaining work, and carry the property through lease-up or sale.
Unlike a new construction loan, the lender is evaluating a project with an existing history, current debt, and completed work.
Why Construction Projects Develop Funding Gaps
Funding gaps can happen for several reasons.
Cost Overruns
Labor, materials, equipment, insurance, and contractor pricing may exceed the original budget.
Even a small percentage increase can create a large shortfall on a major project.
Change Orders
Design revisions, structural discoveries, code requirements, and tenant requests can increase costs.
Delays
Weather, permits, contractor disputes, inspections, and supply-chain issues can extend the timeline.
Longer timelines may also increase interest, taxes, insurance, and site expenses.
Loan Maturity
The original construction loan may mature before the project is completed or stabilized.
The borrower may need to refinance the existing balance and secure enough additional capital to finish the work.
Suspended Draws
A lender may stop future advances if the project no longer meets the original budget, timeline, or equity requirements.
This can create an immediate need for replacement financing.
How Completion Financing May Be Structured
The solution depends on the existing debt, project status, and remaining costs.
Refinancing the Existing Construction Loan
A new lender may pay off the current loan and provide additional funds for completion.
The new financing must account for the existing balance, remaining work, reserves, and contingency.
Bridge Financing Through Completion
A short-term bridge loan may help complete construction and carry the property to a defined milestone, such as:
Certificate of occupancy
Lease-up
Stabilization
Sale
Permanent refinancing
The exit strategy should be realistic and supported by the remaining timeline.
What Completion Lenders Review
Completion lenders need a clear picture of what has happened and what remains.
1. Current Project Status
Borrowers should document the work completed, remaining scope, percentage of completion, permits, inspections, contractor balances, liens, and updated schedule.
A third-party inspection may be required to verify progress.
2. Updated Cost-to-Complete Budget
The original budget is no longer enough.
Lenders typically require an updated cost-to-complete report covering remaining hard and soft costs, change orders, contractor balances, interest carry, taxes, insurance, contingency reserves, and total funds needed.
The figures should be supported by bids, invoices, contracts, and draw records.
3. Existing Debt and Capital Stack
The lender will review current construction debt, accrued interest, contractor liens, investor equity, taxes, and any additional claims against the property.
Unclear obligations can delay or prevent a financing solution.
4. Sponsor and Development Team
Lenders need confidence that the team can finish the project.
They may review the developer, contractor, project manager, and the team’s history with similar developments. If the original team contributed to delays, the borrower should explain what has changed.
5. Value and Exit Strategy
The lender will compare total debt and remaining costs with the projected completed value.
They will also evaluate how the loan will be repaid after construction.
Possible exits include a property sale, permanent refinancing, lease-up, or stabilization.
Prepare Before the Project Stalls
Developers should explore completion financing before capital runs out completely.
Once contractors leave, liens accumulate, permits expire, or enforcement begins, available options may become more limited.
Early preparation gives the borrower time to update the budget, negotiate with the current lender, resolve contractor issues, and present the project clearly.
DarkHorse Capital Group works with developers and commercial real estate investors seeking additional funding or replacement financing for projects already under construction.
Contact DarkHorse Capital Group to discuss construction completion financing for your project.
