construction loan - Investment & Finance Definition
A loan given to a company in order to pay for building construction. Construction loans are relatively short term and the lender takes an ownership interest in the building. At the end of construction, the loan is repaid from the proceeds of a mortgage obtained on the finished building. Because of the risk inherent in construction, such as cost overruns and the potential for not completing the building, the interest rate charged is typically higher than the prime rate.