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Before You Call a Bank. Commercial Construction Loan Calculator & Qualifier • LTC, LTV, DSCR • 2026

Most commercial construction lenders cap loans at 65 to 75 percent loan to cost and 60 to 70 percent loan to value of the stabilized property value. The lower of those two governs. A $10M project with $13M stabilized value at 70 percent LTC and 65 percent LTV would size to $7M, since 65 percent of $13M is $8.45M and 70 percent of $10M is $7M. The borrower brings the $3M equity gap.

Plan on 25 to 35 percent equity for a ground-up commercial construction project in 2026. First-time sponsors and tougher asset classes like hospitality or spec retail often need 35 to 40 percent. Cold storage, industrial, and pre-leased build-to-suits with experienced sponsors can qualify at 20 to 25 percent. Cannabis and unproven concepts typically require 40 to 50 percent.

Loan to cost is the ratio of the loan amount to the total project cost, including hard costs, soft costs, land, and contingency. A 70 percent LTC means the lender will fund up to 70 percent of total project cost, and the borrower must cover the remaining 30 percent as equity. LTC is the primary sizing constraint during construction, before the project has a stabilized value.

Loan to value is the ratio of the loan amount to the appraised or stabilized value of the completed property. A 65 percent LTV means the loan cannot exceed 65 percent of stabilized value. LTV becomes the binding constraint when stabilized value is close to total project cost, which happens when the developer's projected value-add is thin.

The construction loan itself is interest-only and not DSCR-tested. The take-out or permanent loan is DSCR-tested, and that is what lenders underwrite at origination. Most banks require stabilized DSCR of 1.20x to 1.30x at the permanent loan constant. Industrial and cold storage often qualify at 1.20x. Hospitality and unproven concepts may require 1.40x or higher.

Debt yield is stabilized NOI divided by loan amount, expressed as a percentage. It tests loan size without being distorted by interest rates. Most banks want 8 to 10 percent debt yield on commercial real estate loans. Industrial and cold storage often qualify at 8 percent. Hospitality, spec retail, and unproven asset classes need 10 percent or higher.

Rates affect loan size through DSCR, not through LTC or LTV. A higher permanent loan constant means higher annual debt service for the same loan amount, which lowers the DSCR-implied maximum loan. Every 50 basis point increase in the permanent constant reduces the DSCR-governed loan size by roughly 5 to 6 percent. Higher construction rates also enlarge the interest reserve, which increases total project cost and therefore the equity required.

Usually yes. If the land is already owned free and clear, most lenders credit it toward the equity requirement, though the credited amount is typically the lower of original cost basis or current appraised value. Lenders discount land contributed at an appreciated value, especially if it was acquired recently. Land purchased with debt reduces the equity credit by the outstanding balance, which must be paid off at construction loan closing.

Both fill the gap between senior construction debt and sponsor equity. Mezzanine debt is secured by a pledge of the ownership entity rather than the property and typically prices at 11 to 16 percent. Preferred equity sits in the ownership structure with a priority return ahead of common equity and typically targets 12 to 18 percent. Either can push effective leverage from 70 percent to 85 percent of cost, but both require senior lender consent and materially compress sponsor returns.

Bank construction loan rates in 2026 typically run SOFR plus 250 to 400 basis points, working out to roughly 7.5 to 10 percent all-in. SBA 504 first mortgages price 50 to 100 basis points below conventional bank rates. Debt funds price at 9 to 13 percent. Bridge lenders price 11 to 15 percent. Rates vary by sponsor strength, asset class, leverage, and lender relationship.

An interest reserve is loan proceeds set aside to pay interest during construction, when the project produces no income. It is built into the loan budget. Lenders typically size the reserve assuming an average outstanding balance of 50 to 60 percent of the loan across the construction term. On a $7M loan at 9 percent for 18 months, the reserve typically runs $450K to $550K.

A sources and uses statement is a two-sided summary of the project capital plan. Uses list every dollar spent: hard costs, soft costs, land, contingency, interest reserve, origination fee, and third-party reports. Sources list every dollar in: the construction loan, sponsor cash equity, land equity, and any mezzanine or preferred equity. Sources must equal uses exactly. It is typically the first page a credit officer reads, and errors here undermine credibility on everything that follows.

Typical third-party reports and 2026 costs are an as-completed appraisal at $8,000 to $25,000, an environmental Phase I at $3,000 to $8,000 with a Phase II if recommended, a plan and cost review at $5,000 to $15,000, an ALTA survey at $3,000 to $12,000, a zoning report at $1,500 to $3,500, and a seismic or property condition report where applicable. The borrower pays these regardless of whether the loan closes, so budget $25,000 to $60,000 of at-risk capital before closing.

A construction loan funds the building of the project, is interest-only with draws against the schedule of values, and typically has a 12 to 36 month term. A permanent loan replaces the construction loan after the project stabilizes, has amortizing payments, and typically runs 5 to 30 years. A construction-to-permanent loan combines both into a single closing, which saves fees but requires meeting all permanent loan covenants at construction loan closing.

A take-out commitment is a written promise from a permanent lender to refinance the construction loan once the project achieves specific stabilization metrics, typically a minimum DSCR and occupancy threshold. Construction lenders often require a take-out commitment from a creditworthy permanent lender before closing, especially on larger projects, to reduce their exit risk.

Yes. SBA 504 financing works for owner-user commercial construction projects up to roughly $20M in total project cost. The structure is 50 percent first mortgage from a bank, 40 percent SBA debenture at a fixed long-term rate, and 10 percent borrower equity. The 10 percent equity requirement is one of the lowest in commercial real estate. The trade-offs are longer closing times, a 51 percent owner-occupancy requirement, and personal guarantees.

Banks typically want a personal credit score of 680 or higher for commercial construction loans, with 720 plus getting the best terms. Credit unions and SBA 504 programs may go to 660. Private debt funds and bridge lenders care more about deal metrics than personal credit, but they price 200 to 400 basis points above bank rates. Below 640, expect to bring more equity or accept higher cost capital.

With a personal credit score below 640, conventional bank construction financing is unlikely. Options include bringing in a creditworthy co-sponsor or co-general partner, accepting a debt fund or bridge loan at 200 to 500 basis points above bank rates, increasing the equity contribution to 40 to 50 percent, or using SBA 7(a) which has more flexible credit standards but slower processing. Address the credit issue before pursuing larger or future projects.

A completion guaranty is a sponsor obligation to complete construction of the project lien-free at the contract price, regardless of cost overruns. It survives even on otherwise non-recourse loans and is separate from the payment guaranty. If costs exceed the budget, the sponsor funds the overrun out of pocket. A qualified general contractor with a fixed-price or guaranteed maximum price contract is the primary way sponsors limit this exposure.

Bad boy carve-outs are provisions that convert non-recourse debt to full recourse upon defined sponsor misconduct: fraud, misappropriation of funds or insurance proceeds, unauthorized transfers or subordinate liens, environmental violations, and voluntary bankruptcy filings. Standard carve-outs are negotiable at the term sheet stage. Overly broad carve-outs, particularly those triggered by ordinary business events rather than misconduct, should be pushed back on before signing.

Plan on 60 to 120 days from term sheet to close for a bank construction loan, assuming the borrower has a complete plan set, permits, GC contract, appraisal-ready feasibility, and clean financials. SBA 504 closings often run 90 to 150 days. Debt funds and private lenders can close in 30 to 60 days but at higher cost. Incomplete sponsor financials are the most common reason for delay.

Lenders typically require three years of personal and business tax returns, a current personal financial statement, a schedule of real estate owned, a project pro forma, a market study, a complete plan set at 90 percent construction documents or better, a signed GC contract with schedule of values, a project schedule, signed leases or letters of intent, an environmental Phase I, an ALTA survey, a title commitment, entity documents, and proof of insurance. Missing any of these stalls the term sheet.

A construction loan draw schedule is the structured process by which the borrower receives loan proceeds in stages as construction progresses. Draws are typically monthly, tied to a schedule of values reflecting work completed and materials stored on site. Each draw requires a draw package: signed AIA G702 and G703 forms, lien waivers from subcontractors, inspection by the lender's third-party construction monitor, and a title update.

A construction monitor is a third-party engineer or consultant retained by the lender to verify that work billed in each draw is actually in place, that the remaining budget is sufficient to complete the project, and that the schedule is holding. Fund control is a related service where a third party disburses funds directly to subcontractors and collects lien waivers. Monitoring fees typically run $1,000 to $3,000 per draw and are a project cost, not a lender cost.

The sponsor funds the overrun. Construction loans are sized at closing and lenders rarely increase them mid-project. The loan documents typically include an in-balance covenant requiring that undisbursed loan proceeds plus committed equity always be sufficient to complete the project. If the budget goes out of balance, the lender can suspend draws until the sponsor deposits the shortfall in cash. This is why contingency sizing and a fixed-price or guaranteed maximum price GC contract matter so much.

It depends on the lender and project size. Many banks require payment and performance bonds on construction loans above roughly $5 million, or accept a subguard policy or a letter from the surety confirming bonding capacity. Bond cost typically runs 0.8 to 1.5 percent of the contract value and is a hard cost line item. Even where bonds are not required, lenders want evidence the general contractor has the bonding capacity, which functions as third-party validation of the contractor's balance sheet.

Retainage is a percentage of each progress payment, commonly 5 to 10 percent, withheld from the contractor until substantial completion. Lenders hold the corresponding portion of the loan back as well, so retainage does not create a funding gap for the borrower during construction. It does concentrate a meaningful sum at the end of the job, and retainage release rules vary by state, which affects contractor cash flow and subcontractor pricing.

Yes. TCG works alongside borrowers and their lenders to deliver bank-ready construction budgets, GC contracts, schedules of values, and project schedules. A signed GC contract with a qualified design-build firm is one of the items lenders require before issuing a term sheet. TCG is licensed in all 50 states and maintains relationships with banks, credit unions, and private debt funds active in commercial construction.