Skip to main content
Industry-Specific Financing

Commercial Construction Loans for Small Businesses

$10K–$5MLoan amounts
12 mo TIBMin. time in business
600+ creditMin. credit score
Check My Financing Options →

We connect you with lenders — we don’t lend. Your offer comes from a lender, not us.

No hard credit pull Multiple lenders compared Takes 90 seconds Decisions in 24 hours
Free matching service — not a lender No hard credit pull to see options 40+ lenders compared Decisions as fast as 24 hours
By Marcus Webb — Small-business lending analyst Published Updated Editorial policy

What is a commercial construction loan?

A commercial construction loan finances new commercial building construction or major renovation. Loans typically structure as: 12-24 month construction phase with monthly interest-only draws, followed by conversion to permanent take-out financing OR balloon payoff. Most construction loans require 25-35% borrower equity, 680+ credit, signed construction contracts, builder qualifications, and detailed budgets. Rates: 6-12% APR during construction. SBA 504 offers 10% down for owner-occupied construction.

Commercial Construction Financing Overview

Commercial construction loans fund the development or major renovation of commercial real estate. Unlike a permanent mortgage, construction loans are short-term (12–36 months) and disbursed in stages (“draws”) as construction milestones are completed. When construction is complete, the loan converts to or is replaced by permanent financing.

Types of Commercial Construction Loans

Construction-to-Permanent Loans (C2P)

A single loan that covers both construction and permanent phases. During construction: interest-only payments on drawn amounts. After completion: converts to amortizing permanent mortgage automatically. Saves on closing costs vs. two separate loans. Best for owner-occupied commercial properties.

SBA 504 Construction Loan

The SBA 504 program covers ground-up construction and major renovations for owner-occupied commercial property. Structure: 50% conventional lender + 40% CDC + 10% borrower. The SBA portion locks in below-market fixed rates (typically 6.5–9%). Up to $14M total project with $5.5M SBA portion.

Conventional Construction Loan

Bank-provided construction lines of credit disbursed against inspected milestones. Typically 70–75% LTC (loan-to-cost) or 65% LTV (loan-to-value) of completed appraised value. 12–24 month term, Prime-based or SOFR-based floating rate. Requires experienced general contractor and architect’s plans.

Key Requirements for Commercial Construction Loans

RequirementStandard
LTC (Loan-to-Cost)65–75% of total construction costs
Contractor ExperienceLicensed GC with commercial track record
Plans & PermitsFull architectural plans and permitted drawings required
Personal GuaranteeRequired for most SBA and conventional construction loans
Pre-Leasing30–50% pre-leased preferred for investment properties
DSCR (Permanent Phase)1.25+ on stabilized cash flow
Check My Financing Options →

Frequently Asked Questions

How does a commercial construction loan work?
Construction loans fund in monthly draws based on construction progress: foundation, framing, roofing, mechanical/electrical/plumbing, drywall, finishes, certificate of occupancy. Lender (or inspector) verifies progress before each draw. Interest accrues only on amounts drawn. Loan converts to permanent financing or refinances at completion.
What's a construction-to-permanent loan?
A construction-to-permanent (C-to-P) loan combines construction financing with permanent take-out financing in a single closing. During construction: interest-only payments on draws. At completion: automatically converts to permanent amortizing loan (15-30 year). Single closing saves 1-3% in fees vs separate construction + take-out loans.
How much down payment do construction loans require?
Conventional commercial construction: 25-35% down. SBA 504 construction (owner-occupied): 10-15% down. SBA 7(a) construction: 10-20% down. Stronger borrowers and properties get lower down payment requirements. Special-use properties (hotels, medical) may require 30-40% equity.
What's the difference between hard cost and soft cost?
Hard costs: physical construction — materials, labor, fixtures, equipment. Soft costs: design, permits, legal, financing fees, interest reserve, environmental studies, real estate taxes during construction. Most construction loans cover both, but require detailed breakdown. Soft costs typically 15-30% of total project cost.
Do I need a construction contract for a loan?
Yes — most construction loans require: signed construction contract with general contractor (lump sum or guaranteed maximum price preferred), builder qualifications and references, detailed project budget, completion timeline, and contingency reserve (typically 5-10% of hard costs). Cost-plus contracts are usually disfavored by lenders.
How is the construction loan repaid?
Options: (1) construction-to-permanent loan auto-converts to amortizing loan at completion, (2) balloon payoff from sale of property, (3) refinance with permanent loan (bank, SBA 504, or commercial mortgage), (4) lease-up and refinance for income property. Plan the take-out strategy before construction starts.
Marcus Webb Certified Lending Professional (CLP)

CLP Certification, 14 years commercial lending, SBA loan origination

Marcus Webb is a Certified Lending Professional (CLP) with 14 years of experience in commercial lending and SBA loan origination. He has helped over 2,000 small businesses secure financing ranging from USD 50,000 to USD 5,000,000. Marcus holds a Bachelor of Finance from NC State University and the American Bankers Association Certified Lender designation.

All content is reviewed against SBA, Federal Reserve, and CFPB guidelines. Small Business Loans Today is an independent affiliate publisher — not a lender or broker.

Related reading

Sources referenced on this page

Authoritative references consulted for lender-program details, rate ranges, and eligibility requirements discussed above. See our research sources policy for how we verify claims.

  1. U.S. Small Business Administration
  2. Federal Reserve System
  3. Consumer Financial Protection Bureau

Every Month Without Capital
Is Revenue Left Behind.

See your options before the next opportunity passes. It takes 90 seconds and won't affect your credit score.

Check My Financing Options →

Free matching service  •  Not a lender or broker  •  Your offer comes from a lender, not us

Get Business Financing →