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Most commercial construction lenders cap loans at 65 to 75 percent loan-to-cost (LTC) and 60 to 70 percent loan-to-value (LTV) 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.

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.

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.

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.

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.

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.

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.

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.

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.

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 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-off is longer closing times, occupancy requirements (51 percent owner-occupied), and personal guarantees.

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.

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

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.

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 also maintains relationships with banks, credit unions, and private debt funds active in commercial construction across all 50 states.

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 subs, inspection by the lender's third-party construction monitor, and title update.

With a personal credit score below 640, conventional bank construction financing is unlikely. Options include: bringing in a creditworthy co-sponsor or co-GP, 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.