Commercial construction loans fund ground-up builds and major renovations through milestone-based draws. Bank, SBA 504, and private options from 70–80% LTC with interest reserves and takeout planning built in.

Get Construction Quote →How Draws Work ↓

70–80%

Max LTC

6.5–9%

Rate Range

12–24 mo

Typical Term

IO + Draws

Payment Structure

HOW CONSTRUCTION LOANS WORK

Milestone-Based Funding for Your Build

Unlike permanent loans that fund in a lump sum, construction loans release capital through a draw schedule tied to project milestones. You request a draw after completing each phase (foundation, framing, mechanical, finish), an inspector verifies the work, and the lender releases the budgeted amount. Interest accrues only on drawn funds, and an interest reserve is typically built into the loan to cover payments during construction.

Ground-Up Construction

New building from vacant land. Full draw schedule from site prep through certificate of occupancy. Requires architectural plans, contractor bids, and takeout commitment.

Major Renovation

Substantial rehab of existing structures. Partial draw schedule for demo, structural, mechanical, and finish work. Existing structure reduces lender risk vs. ground-up.

Construction-to-Permanent

Single close that converts automatically from construction draws to permanent amortizing debt at completion. Saves on double closing costs and eliminates takeout risk.

Interest Reserve

Lender capitalizes 12‘24 months of estimated interest payments into the loan amount. You don’t make monthly payments out of pocket during construction.

Contingency Requirement

Lenders require 5–15% hard cost contingency in the construction budget. This protects against change orders, material cost increases, and unforeseen conditions.

Takeout Commitment

Most construction lenders require evidence of permanent financing commitment before funding. Planning your takeout early is essential. See our Permanent Financing guide.

CONSTRUCTION LOAN OPTIONS

Compare Construction Financing by Lender Type

Bank / Portfolio

SBA 504

Private / Bridge

Rate

6.5 – 8.5%

5.85 – 7.0% blended

9 – 13%

Max LTC

70 – 80%

Up to 90%

65 – 75%

Term

12 – 24 months

Construction + 25yr perm

12 – 18 months

Occupancy

None required

60%+ owner at completion

None required

Speed

45 – 90 days

60 – 120 days

14 – 30 days

Best For

Experienced developers

Owner-occupants, 10% down

Speed, non-bankable

Estimate your construction budget: LTC Calculator · Payment Calculator

FREQUENTLY ASKED QUESTIONS

Construction Loan FAQ

How does the draw process work?

You submit a draw request with invoices and completion evidence. The lender sends an inspector to verify the work matches the approved budget and schedule. Once verified, funds are released (typically within 5–10 business days). Most loans have 4–8 draws over the construction period, each tied to specific milestones.

Do I need a permanent financing commitment before I can get a construction loan?

Most bank lenders require a takeout commitment or letter of intent from a permanent lender before funding construction. Construction-to-permanent loans eliminate this requirement since the same loan converts automatically. SBA 504 construction includes permanent financing by design.

What documents do I need for a construction loan application?

Architectural plans, detailed construction budget with line items, general contractor bid and qualifications, project timeline, environmental (Phase I), survey, zoning confirmation, personal financial statements, and entity documents. The more complete your package, the faster the approval.

What happens if construction costs exceed the budget?

The contingency reserve (5–15% of hard costs) covers overruns up to a point. Beyond that, you’ll need additional equity. Some lenders allow budget reallocation between line items with approval. Significant overruns may require a loan modification or supplemental financing.

Can I use SBA 504 for ground-up construction?

Yes, SBA 504 is excellent for owner-occupied construction with just 10% down. The CDC/SBA portion (40%) provides a below-market fixed rate for 25 years, and the bank first mortgage (50%) covers the construction period. Your business must occupy 60%+ of the completed building within one year.

How long does construction loan approval take?

Bank: 45–90 days. SBA 504: 60–120 days. Private/bridge: 14–30 days. The construction underwriting process is longer than acquisition loans because lenders must evaluate the plans, budget, contractor, and timeline in addition to standard borrower and property analysis.

Planning a Construction Project?

Our advisors structure construction financing across bank, SBA, and private lenders. We help plan the draw schedule and takeout strategy from day one.

Get Construction Quote →

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