Scotia Connect Development & Construction Finance

Construction Loan Mechanics

Scotia Connect's construction lending operates on a progress-draw model. Rather than advancing the full loan amount at closing, the bank releases funds incrementally as construction milestones are achieved. A typical draw schedule might include five or six phases: site preparation, foundation, framing, mechanical/electrical, finishing, and final completion.

Each draw request is verified by an independent cost consultant appointed by Scotiabank, who inspects the site and confirms that the claimed percentage of completion is accurate. The consultant also verifies that all subtrades have been paid for prior phases and that no construction liens have been registered against the property. This discipline protects both the lender and the developer from cost overruns and contractor disputes.

Interest accrues only on the drawn balance, which means the developer's carrying costs are lowest during the early phases of construction when the drawn amount is small. As the project approaches completion and the full facility is drawn, carrying costs peak — but at this point, the developer is typically close to revenue realization through unit sales or lease-up.

Land Acquisition

Acquiring development land requires specialized financing because the asset is non-income-producing until construction is completed. Scotia Connect provides land acquisition loans with advance ratios up to 65% of appraised value, recognizing that land values can be volatile depending on zoning approvals, municipal planning decisions, and market conditions.

The loan is typically structured as interest-only with a short tenor (12 to 36 months), reflecting the expectation that the developer will either begin construction or refinance into a construction facility within that timeframe. For land held as a longer-term inventory position, extended terms may be negotiated on a case-by-case basis.

Condo Pre-Sale Programs

In Canadian condominium development, the pre-sale requirement is the cornerstone of construction financing. Scotiabank typically requires that 60-70% of total project revenue be secured through binding purchase agreements before construction financing is released. ScotiaConnect's pre-sale tracking module allows developers to upload executed purchase agreements, deposit receipts, and purchaser qualification data directly into the platform.

The bank's credit team reviews each pre-sale for enforceability, ensuring that purchasers have provided sufficient deposits and that the agreements contain acceptable rescission provisions. Once the pre-sale threshold is met, the construction facility is activated and draw requests can begin.

CMHC Take-Out Financing

For purpose-built rental projects, Scotia Connect coordinates CMHC take-out mortgages that replace the construction loan upon project completion. The CMHC-insured permanent mortgage offers significantly lower interest rates and longer amortization periods than the construction facility, which dramatically improves the developer's cash-on-cash return.

The transition from construction loan to permanent mortgage is managed by your Scotia Connect RM in coordination with CMHC, ensuring that there is no gap in financing between the two facilities.