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Simple English definitions for legal terms
construction financing
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A quick definition of construction financing:
Construction financing is a way to get money to build something, like a house or a big building. It's a short-term loan that helps pay for things like construction costs until a permanent loan can be obtained. This type of financing is also called interim financing. There are other ways to get money for projects, like selling stocks or bonds (called outside financing) or using money generated by a company's operations (called internal financing).
A more thorough explanation:
Definition: Construction financing is a type of interim financing used to cover the costs of building a new structure or renovating an existing one until permanent financing can be obtained. It is a short-term loan secured to cover certain major expenditures, such as construction costs, until permanent financing is obtained.
Examples:
- A developer needs to build a new apartment complex but does not have enough money to cover the construction costs. They obtain construction financing to cover the costs of building the complex until they can secure permanent financing.
- A business owner wants to renovate their store but does not have the funds to do so. They obtain construction financing to cover the costs of the renovation until they can secure permanent financing.
These examples illustrate how construction financing is used to cover the costs of building or renovating a structure until permanent financing can be obtained. It is a short-term solution that allows developers and business owners to start their projects without having to wait until they have all the necessary funds.