A construction loan with a pre-arranged takeout loan in place. A construction loan is typically a short term loan that only exists for the life of the project. A take out loan is a more long term loan that can be used for other purposes after the construction is completed. Construction loans are usually not standardized so the lender must know more information about the planned construction before they will lend you money.
The payments during construction are interest only payments and the full amount is due after completion of the project. The interest is usually a variable rate for construction loans.
The borrower and the lender must then create a schedule according to how much money is needed at each different stage of construction. The interest is then paid on the money that has been borrowed to date. Another thing the borrower and the lender must decide is what proportion of the whole project is the lender willing to lend.
The land that the project is being build on can be used as equity on the construction loan as well, but only if it is owned by the borrower. After the construction is completed, the takeout loan can be utilized for a more long term usage.
A standard construction loan is very short lived, so a loan with longer terms is needed to keep the project going after construction.