Question 1

What is a commercial construction loan?

Accepted Answer

A commercial construction loan is short-to-medium-term financing used to fund ground-up construction or major renovation of a commercial property. The loan covers land acquisition, construction costs, and related expenses. Funds are typically disbursed in draws as construction milestones are completed. Once construction is finished, the borrower refinances into a permanent mortgage or sells the property.

Question 2

How do construction loan draws work?

Accepted Answer

Construction loans are disbursed in draws, incremental releases of funds tied to construction milestones. After each phase is completed (e.g., foundation, framing, drywall, final inspection), the lender sends an inspector to verify the work, then releases the next draw. This protects the lender by ensuring funds are used for actual construction progress rather than released upfront.

Question 3

What LTC (loan-to-cost) do construction lenders offer?

Accepted Answer

Construction lenders typically offer 70 to 80% LTC, meaning the loan covers up to 70 to 80% of the total project cost (land + construction + soft costs). The borrower must contribute the remaining 20 to 30% in cash or equity. Some lenders also look at LTGDV (loan-to-gross-development value), typically capped at 65 to 70%.

Question 4

What credit score is needed for a commercial construction loan?

Accepted Answer

Most construction lenders require a minimum credit score of 680, though some accept 650 or lower for experienced developers with strong projects. The borrower's development experience, the project's feasibility, and the exit strategy are often more important than the credit score alone.

Question 5

How long are construction loan terms?

Accepted Answer

Construction loan terms typically range from 12 to 36 months, depending on the project scope. Smaller projects (single-family, small multifamily) may have 12 to 18 month terms, while larger commercial developments may extend to 24 to 36 months. Some construction loans include extension options if the project takes longer than expected.

Question 6

Can I get a construction loan for a fix-and-flip project?

Accepted Answer

Yes. Fix-and-flip loans are a specialized type of short-term construction loan designed for investors who purchase, renovate, and sell properties within 6 to 18 months. These loans typically offer 90% of purchase price and 100% of renovation costs, with rates from 10 to 14%. See our Fix & Flip page for more details.

Construction Loans

Typical Loan Parameters

Project Types We Finance

Hotels & Hospitality

Office & Medical

Multifamily & Condo

Industrial & Warehouse

Retail & Mixed-Use

Specialty & Unique

Key Documents for Construction Loans

Frequently Asked Questions

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