If you're a real estate developer or investor in Texas, choosing the right financing structure can make or break your project's success. Two of the most common funding options for commercial development are construction loans and mini-perm loans. But what are the differences—and when should you use one over the other?
Loan Types Explained
Construction Loan
Construction loans are short-term, interest-only loans used to fund the actual building of a commercial property. They are typically used for ground-up development or major renovations, and funds are released in stages based on construction progress.
- Short-term: usually 12 to 24 months
- Interest-only payments during construction
- Higher risk for lenders → higher documentation and scrutiny
- Requires exit strategy (sale or refinance)
Mini‑Perm Loan
Mini‑perm loans act as transitional financing after construction is complete. They're used when the developer needs more time to stabilize the asset (e.g., reach occupancy goals) before securing permanent financing.
- Term: 2 to 5 years
- Used post-construction to "season" the asset
- Allows time to lease up or improve NOI
- Bridges the gap to long-term permanent financing
When to Use Each Loan Type
In many cases, a developer in Texas may use construction financing first, then refinance into a mini-perm loan before securing a permanent mortgage.
- Use construction loans when breaking ground on a new project
- Use mini-perm loans when construction is complete but the asset isn't ready for permanent financing
This approach allows you to avoid paying high long-term interest rates before your project starts producing income.
Tips for Texas Developers
- Secure both loan stages early to reduce risk
- Work with experienced lenders familiar with Texas CRE cycles
- Have a solid exit plan to transition into long-term financing
We help clients navigate multi-stage loan structures from start to finish.
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