Commercial Construction Loan Rates in 2026: Current Ranges, How Lenders Price Your Project, and How to Qualify
Commercial Construction Loan Rates in 2026: Current Ranges, How Lenders Price Your Project, and How to Qualify
The Federal Reserve raised rates on September 16, 2026, and construction debt got more expensive overnight. If you are building in the next 12 months, this is where rates sit today, what lenders are actually looking at, and how the contractor you hire affects the money you borrow.
As of late September 2026, most bank construction loans price at 1-month Term SOFR plus 2.75 to 3.75 percent (about 6.65 to 7.65 percent) or prime plus 1.00 to 1.50 percent (about 8.00 to 8.50 percent), floating and interest-only. SBA 504 effective rates are about 6.5 to 6.6 percent fixed, life companies quote about 6.5 to 8.5 percent, and private debt funds and bridge lenders run about 9 to 12 percent. Benchmarks: WSJ Prime 7.00 percent, 1-month Term SOFR about 3.90 percent, and the fed funds target 3.75 to 4.00 percent after the September 16 hike.
Where Rates Are Right Now (September 2026)
The biggest change this fall is direction. On September 16, 2026, the Federal Open Market Committee raised the federal funds target by 25 basis points to 3.75 to 4.00 percent, citing inflation still running above target. The press conference transcript is worth reading if you are timing a closing. Anyone still telling you rates are about to fall is working from summer data.
Construction loans float off short-term benchmarks, so they moved immediately:
- WSJ Prime Rate: 7.00 percent, effective September 16, up from 6.75 percent, per Bankrate and the Federal Reserve's H.15 release. See the prime rate history for context.
- 1-month CME Term SOFR: about 3.90 percent on September 28, per Global-Rates. Overnight SOFR was also 3.90 percent, per the New York Fed. CME administers Term SOFR.
- 10-year Treasury: 5.17 percent on September 25, per FRED. This matters for your take-out loan and for SBA 504, which prices off Treasuries.
Construction Loan Rates by Lender Type
Banks: the default for most owner and developer projects
National and regional banks typically price construction loans at Term SOFR plus 2.75 to 3.75 percent, while community banks often quote prime plus 1.00 to 1.50 percent. Loans are floating, interest-only during construction, and usually 12 to 36 months. The Fed's July 2026 Senior Loan Officer Survey found construction and land development standards basically unchanged in the second quarter, with a moderate share of banks reporting weaker demand.
SBA 504: the best fixed rate for owner-occupants
For businesses building their own facility, SBA 504 remains hard to beat. CDC Small Business Finance reports September 2026 effective rates of 6.541 percent on 25-year debentures, 6.534 percent on 20-year, and 6.600 percent on 10-year, all-in with fees. The 25-year rate was 5.852 percent in January, so it has climbed with Treasuries. The SBA 504 program caps the SBA portion at $5.5 million. Our SBA 504 construction loan guide walks through the structure.
SBA 7(a): flexible, but watch the cap
SBA 7(a) maximum rates are prime plus a spread that shrinks as the loan grows, capped at prime plus 3.0 percent above $350,000. At 7.00 percent prime, that ceiling is 10.00 percent. The 7(a) program tops out at $5 million.
Life companies, HUD, and debt funds
Life insurance companies quote construction money around 6.50 to 8.50 percent for strong sponsors and asset types. HUD and FHA multifamily construction loans are fixed through a 40-year permanent term. On the other end, private debt funds run about 9.25 to 10.00 percent and hard money about 10 to 12 percent. They close faster and lend higher, and you pay for both.
Leverage, Coverage, and Fees: The Terms Behind the Rate
The rate is only one line of the term sheet. These terms decide how much equity you need:
- Loan to cost (LTC): typically 60 to 80 percent. Higher rates have pushed many bank deals toward 60 to 65 percent. Federal supervisory guidance in 12 CFR Part 365 sets an 80 percent loan-to-value limit for commercial construction and 75 percent for land development.
- Debt service coverage and debt yield: lenders size the construction loan against the permanent take-out. CBRE's Q2 2026 Lending Momentum report shows average permanent loan DSCR of 1.43x, debt yield of 10.2 percent, and commercial LTV of 59.6 percent.
- Origination fees: commonly 0.5 to 1.5 percent of the commitment, based on general market practice.
- Interest reserve: a budget line funded by the loan that pays interest during construction. Banks must set standards for reserves under federal guidelines.
- Recourse: full or partial personal guarantees are standard on smaller deals. Non-recourse construction money is mostly for institutional sponsors.
The OCC Comptroller's Handbook on commercial real estate lending is the best public description of how bank examiners expect construction loans to be underwritten, and it is worth skimming before your first lender meeting. Test your own numbers with TCG's free commercial construction loan qualifier.
What Drives Your Spread
Two borrowers on the same day can see rates 150 basis points apart. Lenders price risk, and these are the risks they look at:
Sponsor strength
Track record on similar projects, liquidity, and net worth relative to the loan.
Asset type
Industrial and multifamily price tighter. Hospitality and speculative office price wider.
Preleasing
Owner-occupied or preleased projects get better pricing than speculative ones.
Equity and LTC
More cash in first means less risk and a better rate.
The contractor
A qualified, bonded GC on a fixed-price or GMP contract, with a realistic schedule, reduces completion risk.
Budget quality
An independent budget review, hard and soft cost contingency, and permits in hand before closing.
How Construction Loan Interest Actually Adds Up
Construction loans charge interest only on what you have drawn, and draws follow the schedule of values as work is completed and inspected. Our construction loan draw schedule guide and retainage release mechanics cover the process. Here is the math on a $5 million loan over 12 months at 6.90 percent (Term SOFR 3.90 plus 3.00):
- If fully drawn on day one: about $345,000 of interest
- Drawn evenly at the start of each month: about $186,900
- Drawn evenly at the end of each month: about $158,100
- Same even draws at 8.00 percent (prime plus 1): about $216,700
- Add a 1 percent origination fee: $50,000
So a realistic interest reserve on a $5 million, 12-month build is roughly $160,000 to $220,000. Every month of schedule delay adds interest on your highest balance, which is why construction speed is a finance issue as much as an operations one. A month saved at the end of a $5 million project is worth about $29,000 in interest alone at 6.90 percent.
That is the economic case for design-build and fast preconstruction. Read how long ground-up commercial construction takes and our construction-to-perm loan conversion guide for the take-out side.
Texas and DFW: What Local Borrowers Are Seeing
Dallas-Fort Worth remains one of the most active construction lending markets in the country. Lender quote pages for DFW show bank construction pricing in the same SOFR-plus and prime-plus ranges above, and a November 2025 Terry Dale Capital guide cited 7 to 10 percent rates, 70 to 80 percent LTC, and 18 to 36 month terms for the market. Large deals are still closing: Commercial Observer reported a $77 million construction loan for a Whole Foods anchored project in Southlake on September 9, 2026.
TCG builds across Texas from our Dallas office. See our pages for Dallas, Houston, Austin, and San Antonio, and local cost data in commercial construction costs in Dallas-Fort Worth.
Will Construction Loan Rates Go Down?
Not soon, based on current signals. The Fed just raised rates, the 10-year Treasury is above 5 percent, and inflation remains above target. That said, credit is available. The Mortgage Bankers Association reported commercial and multifamily originations up 16 percent year over year in the second quarter of 2026, and CBRE reported commercial spreads 21 basis points tighter year over year. CREDA, formerly NAIOP, tracks developer debt sentiment quarterly.
The practical takeaway: don't wait for rates to build a project that pencils today. Control what you can. Lock scope early, get a fixed price from a bonded contractor, compress the schedule, and bring the lender a clean budget. This article is market information, not financial advice. TCG is a contractor, not a lender or financial advisor, so confirm terms with your lender and advisors. For more on the finance side of development, see our construction finance and owner advisory guide.
Frequently Asked Questions
As of late September 2026, bank commercial construction loans typically run about 6.65 to 7.65 percent when priced at Term SOFR plus 2.75 to 3.75 percent, or about 8.00 to 8.50 percent at prime plus 1.00 to 1.50 percent. SBA 504 effective rates are about 6.5 to 6.6 percent, and private debt funds run about 9 to 12 percent.
Both. Larger national and regional banks usually price construction loans as a spread over 1-month Term SOFR, while many community banks price over the WSJ Prime Rate. As of September 2026, Term SOFR is about 3.90 percent and prime is 7.00 percent, so compare the all-in rate, not the spread.
Most lenders require 20 to 40 percent equity, meaning loan to cost of 60 to 80 percent. Higher rates have pushed many bank deals toward 60 to 65 percent LTC. SBA 504 can allow as little as 10 percent down for qualifying owner-occupied projects.
Interest is charged only on the amount drawn, not the full commitment. On a $5 million, 12-month loan at 6.90 percent with even monthly draws, total interest is roughly $160,000 to $190,000, compared with $345,000 if the full amount were drawn on day one.
An interest reserve is a line item in the project budget, funded by the loan itself, that pays monthly interest during construction so the borrower does not pay out of pocket. On a $5 million, 12-month build in 2026, a realistic reserve is about $160,000 to $220,000.
Yes. SBA 504 and SBA 7(a) both finance ground-up construction for owner-occupied businesses. SBA 504 offers fixed rates of about 6.5 to 6.6 percent as of September 2026, with the SBA portion capped at $5.5 million. SBA 7(a) maxes out at $5 million.
Yes. Lenders review the contractor's experience, bonding, contract form, schedule, and budget. A bonded GC on a fixed-price or GMP contract with a realistic contingency reduces completion risk and can improve loan terms.
Current signals point the other way. The Fed raised the fed funds target to 3.75 to 4.00 percent on September 16, 2026, and the 10-year Treasury is above 5 percent. Build on today's numbers rather than waiting for a rate cut.
Bring Your Lender a Budget It Can Underwrite
TCG builds lender-ready budgets, schedules of values, and fixed-price or GMP contracts backed by bonding. Run your numbers through our loan qualifier, get a TCG.ai estimate in minutes, or book a call to walk your project with our team.
Related Reading
Sources
- Federal Reserve: FOMC Statement, September 16, 2026
- Federal Reserve: FOMC Press Conference, September 16, 2026
- Federal Reserve: H.15 Selected Interest Rates
- FRED: 10-Year Treasury Constant Maturity
- New York Fed: Secured Overnight Financing Rate
- CME Group: Term SOFR Benchmark
- Global-Rates: 1-Month CME Term SOFR
- Bankrate: Wall Street Journal Prime Rate
- FedPrimeRate: WSJ Prime Rate History
- SBA: 504 Loans
- SBA: 7(a) Loans
- SBA: 7(a) Terms, Conditions, and Maximum Rates
- CDC Small Business Finance: SBA 504 Rates
- Federal Reserve: Senior Loan Officer Opinion Survey, July 2026
- CBRE: Q2 2026 Lending Momentum
- MBA: Q2 2026 Commercial and Multifamily Originations
- OCC: Comptroller's Handbook, Commercial Real Estate Lending
- eCFR: 12 CFR Part 365, Real Estate Lending Standards
- CREDA (formerly NAIOP): Research and Publications
- Commercial Observer: $77M DFW Construction Loan
Cost figures are 2025 to 2026 published benchmarks and TCG field experience. They are planning ranges, not bids. Get a project-specific number through TCG.ai or a call with our team.
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