UNDERSTANDING LAND LOANS
Why Land Financing Is Different
Land is the highest-risk asset class in commercial real estate lending. Unlike improved properties, raw land generates no income, has limited comparables, and carries entitlement and development risk. As a result, land loans require more equity, carry higher rates, and come with shorter terms than most CRE loans.
However, land is also where the greatest value creation happens. Buying the right parcel at the right price, securing entitlements, and developing or selling to a builder can generate outsized returns. The key is matching your land strategy with the right financing structure.
Raw Land Acquisition
Unimproved parcels with no entitlements. Highest risk, highest equity required (40–50% down). Best for land bankers with long time horizons.
Entitled Land Purchase
Parcels with approved zoning, permits, or development rights. Lower risk than raw land. Lenders offer better leverage (60–70% LTV) on entitled sites.
Land + Construction Package
Combine land acquisition with construction financing in one facility. Seamless transition from land closing to vertical construction without re-qualifying.
SBA 504 for Land
If your business will occupy the future building, SBA 504 can finance the land purchase as part of a combined land + construction project with 10% down — 15% for a business two years old or less or a special-purpose building, 20% if both.
Seller Financing Option
Some sellers carry part of the price themselves; the down payment, rate and balloon are negotiated deal by deal.
Development Site Subdivision
Financing for developers acquiring larger parcels for subdivision and lot sales. Release clauses allow individual lot sales while maintaining the master loan.
LAND LOAN STRUCTURES
Financing Terms by Land Type
Terms vary dramatically depending on the land’s development status. Entitled sites with approved plans get significantly better financing than raw, unzoned parcels.
| Raw Land | Entitled Land | Land + Construction | |
|---|---|---|---|
| Down Payment | 40 – 50% | 30 – 40% | 20 – 35% |
| Max LTV | 50 – 60% | 60 – 70% | 65 – 80% LTC |
| Rate Range | 8.5–11.5% | 7.5–9.75% | 6.75–10.5% |
| Term | 1 – 3 years | 2 – 5 years | 12–24 mo (the build period) |
| Amortization | Interest-only | IO or partial | IO during construction |
| Lender Type | Private / hard money | Bank / private | Bank / SBA |
| Best For | Land banking | Near-term development | Shovel-ready projects |
Typical ranges, updated September 2026. Your terms depend on the property, the borrower and the lender.
REQUIREMENTS
What Land Lenders Ask For
- Equity: 50–70% loan-to-value means 30–50% down; raw land sits at the high end.
- A plan and a timeline: what you will build or who you will sell to, and when — lenders fund land as a step toward development, not open-ended holding.
- Entitlement status: current zoning, approved site plan or permits, utilities at the site and road access.
- Due diligence: Phase I environmental, survey, title report, and for development sites a geotechnical report.
- Carrying capacity: land produces no income, so lenders look at your income or reserves to pay interest, taxes and insurance through the term — often with an interest reserve.
- Experience and credit: a development track record helps; personal guarantees are standard.
Owner-occupants who will build their own facility can use SBA 504 for land and construction together.
Free tools
Run the numbers
The same metrics a lender checks — free, instant, no signup. Each result links straight into an application.
- LTC Calculator Loan-to-cost (LTC) is the loan divided by the total project cost — land, hard costs and soft costs. Enter your budget to see your LTC, the most a lender's LTC limit allows you to borrow, and the equity you need to bring.
- LTV Calculator Calculate your Loan-to-Value ratio or find the maximum loan amount for your commercial property. See which programs you qualify for at your LTV.
FREQUENTLY ASKED QUESTIONS
Land Loan FAQ
Can you get a loan to buy just land?
Yes. Banks, credit unions, private lenders and land sellers (through seller financing) all lend on land alone, though with more equity than for a building — 50–70% loan-to-value, lower for raw land — and at about 7.5–11.5%. SBA loans finance land only as part of building a facility your business will occupy.
How long are commercial land loans?
Usually 1–5 yr, often interest-only with a balloon at the end. The term is meant to carry the land to its next step — construction financing, a sale or a longer-term loan once it is improved — so lenders want to see that plan.
Why do land loans require so much more equity?
Land generates no income, has volatile valuations, is illiquid compared to improved property, and carries development/entitlement risk. Lenders compensate for this by requiring 30–50% equity — 40–50% on raw land, 30–40% on entitled land — to protect against value decline during the hold period.
Can I use SBA loans to buy land?
Yes, but only if you plan to build an owner-occupied facility on the land. SBA 504 can finance land as part of a combined land + construction package with 10% down — 15% for a business two years old or less or a special-purpose building, 20% if both (13 CFR 120.910). You cannot use SBA to buy land for speculation or investment purposes.
What makes entitled land more financeable?
Entitlements (approved zoning, permits, environmental clearance) remove the largest risk variable in land development. A site with approved plans for 200 apartment units is dramatically more valuable and financeable than a raw parcel with the same zoning potential.
How do I transition from a land loan to a construction loan?
Ideally, structure a combined land + construction facility from the start, so the land loan automatically converts to a construction draw facility when you break ground. If you have a standalone land loan, you will need to refinance into a construction loan when ready to build.
What due diligence should I complete before applying?
Phase I environmental, survey, geotechnical report, zoning verification, and a preliminary title report are standard. For development sites, also have architectural plans, cost estimates, and a development timeline. The more documentation you bring, the stronger your application.
Is seller financing common for land deals?
Very common. Many land sellers prefer installment sales for tax advantages. Seller-carry terms — down payment, rate, balloon — are negotiated deal by deal. We can help structure seller-carry proposals that benefit both parties.
Related on BestLoanUSA
Related financing
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- Construction Loans A commercial construction loan funds a ground-up build or major renovation in draws as work is completed, usually interest-only for 12–24 mo, and is repaid by a permanent loan or a sale. Banks and debt funds typically lend 65–80% LTC (up to 90% with SBA 504) — a share of total project cost, not value — at about 6.75–10.5%; private lenders charge 9–13%. Land loansLoan-to-value
- Hard Money Takeout A hard money takeout refinance replaces a short-term hard money or bridge loan with a long-term loan once the property is renovated, leased or stabilized. Bank, SBA and DSCR lenders typically lend up to 75% of value at about 6.25–8.75%, compared with 9–13% for hard money. Loan-to-valueHard money
- CRE Refinancing A commercial real estate refinance replaces your existing mortgage with a new loan — to lower the rate, replace a maturing balloon, move from floating to fixed, or take cash out. To refinance, check your current loan’s maturity and prepayment penalty, get the property appraised, show that its net operating income covers the new payment at the lender’s minimum DSCR, compare term sheets and close — the new lender pays off the old loan, usually in 30–60 days. Bank, SBA 504, CMBS and DSCR lenders price refinances at about 6.25–8.75%. Loan-to-valueSBA 504
Guides & articles
All articles →- Bridge Loan vs Hard Money Loan: Cost, Terms and Which Fits Bridge loans and hard money loans are both short-term real estate debt, but differ in lender, cost, leverage and speed. Side-by-side terms and a worked example. Land loansLoan-to-value
- SBA 504 Loans for Commercial Real Estate: 10% Down How the SBA 504 loan lets a business buy its own commercial property with as little as 10% down — the structure, who qualifies, costs and the process. Loan-to-valueSBA 504
- Loan-to-Value Ratio (LTV) Explained for Business Loans What loan-to-value is, how lenders use it to size a loan and your down payment, typical LTV limits by loan type, and how to calculate yours. Loan-to-valueSBA 504
Glossary
All terms →More calculators
All calculators →- SBA 504 Loan Calculator Estimate your SBA 504 loan structure — see the three-part split (borrower, CDC, bank), monthly payments for each portion, and total project financing. SBA 504SBA loans
- Debt Yield Calculator Calculate Debt Yield (NOI ÷ Loan Amount) — the metric CMBS and institutional lenders prioritize over DSCR and LTV. Find your maximum loan amount based on target debt yield. Loan-to-value