how do businesses use take out loans 
construction projects on all types of real estate property require a high initial investment yet they are not backed by a fully completed piece of property therefore construction companies typically must obtain high interest short term loans to complete the initial phases of property development construction companies may choose to obtain a delayed draw term loan which can be based on various construction milestones being met before principal balances are dispersed they also have the option of obtaining a short term loan many short term loans will provide the borrower with a principal payout that requires payment at a future time often the borrowing terms allow the borrower to make a one time payoff at the loan s maturity this provides an optimal opportunity for a borrower to obtain a take out loan with more favorable terms example of a take out loanassume xyz company has received approval for plans to build a commercial real estate office building over 12 to 18 months it may obtain a short term loan for the financing it needs to build the property with full repayment required in 18 months the property plans are achieved ahead of schedule and the building is completed in 12 months xyz now has more negotiating power because the fully complete property is able to be used as collateral thus it decides to obtain a take out loan which provides it with the principal to pay off the previous loan six months early the new loan allows xyz to make monthly payments over 15 years at an interest rate that is half of that of the short term loan with the take out loan it can repay its short term loan six months early saving on interest costs xyz now has 15 years to pay its new take out loan at a much lower rate of interest using the completed property as collateral 