Definition - What does Construction Loan mean?
A construction loan is a loan that is given to a company that constructs buildings. The loan is used to cover the cost of constructing the building. The construction company typically repays this loan with the profits that it makes from the building. In the context of the law, these loans are legally enforceable, and must be repaid.
Justipedia explains Construction Loan
Constructing a building can cost millions of dollars. Often, the developers who build buildings do not have enough cash on hand to finance the building project. So, they will seek financing from banks or other lenders. They do this by getting construction loans. Construction loans are important to the construction business in that they can help new projects to be funded. Without them, it would be much more difficult to get the necessary financing for new construction projects.