Which type of loan finances the building of a project only for the duration of construction?

A construction loan is specifically designed to provide financing for the building of a project during its construction phase. These loans are typically short-term, lasting only for the duration of the construction process. Funds are disbursed in stages, known as draws, based on the progress of the construction work and are paid back once the project is completed, often through a long-term mortgage or permanent financing.

In the context of project financing, a construction loan covers costs such as materials, labor, and permits, ensuring that the builder has the necessary cash flow to complete the project. They generally have higher interest rates compared to traditional mortgage loans due to the increased risk for lenders during the construction period.

Other types of loans, such as bridge loans, hard money loans, and mezzanine loans, serve different purposes and have distinct characteristics. For example, bridge loans provide temporary financing to cover immediate cash flow needs but are not limited to construction costs only. Hard money loans are typically secured by real estate and involve higher interest rates, focusing more on asset value than project completion. Mezzanine loans are a hybrid of debt and equity financing, allowing lenders to take an ownership stake in the project but are less focused on the actual construction process. Thus, the defining characteristic of a construction