Commercial Construction Loans: Best Options and How to Get One

Commercial construction loans can help you finance property development or renovation projects.

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Updated Mar 6, 2026 · 5 min read

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Building or renovating commercial property can be expensive. In addition to land acquisition, you’ll need to cover labor, materials, permits and architectural fees. A commercial construction loan can help finance these costs, typically with funds released in stages as your project progresses.

What is a commercial construction loan?

A commercial construction loan is a business loan that helps cover the costs of building or renovating commercial property, including offices, warehouses or multi-family buildings.

These loans can be used for:

Purchasing and developing land.
Renovating or expanding existing properties.
Buying materials and equipment.
Covering payroll and other operating expenses.

How do commercial construction loans work?

A commercial construction loan can help you keep your balance sheet manageable during a build, since lenders often accept interest-only payments for the duration of construction. But payments typically increase significantly once construction is complete. Here’s how these loans work:

Draw schedule

In most cases, construction business loans work under a draw schedule:

Loan funds are released in stages.
Each disbursement is tied to a project milestone.
You might receive a designated percentage of your financing only after a certain inspection is complete.
While your build is ongoing, most lenders will let you pay only interest, and only on the amount you’ve drawn to date.

Loan repayment structure

Many construction loans:

Have short terms.
Require you to pay the remainder of the balance once the project is complete.

If you can’t afford to pay your loan off in that time frame, you’ll need to:

Refinance the loan, or,
Take out a commercial real estate loan to pay off the balance.

Construction-to-permanent loans

Some commercial construction loans are “construction-to-permanent” loans.

In these instances, you’ll continue to make payments to the same lender over a longer period of time.

Commercial construction loan rates, terms and fees

Commercial construction loan costs vary by lender and your qualifications, but generally you can expect:

Interest rates

Typically range from 5% to 13% or more, depending on lender, creditworthiness and project risk.
Online and hard money lenders may charge higher rates.

Loan terms

Often short, six to 36 months.
SBA loans can offer longer terms.
Interest-only loans will require a balloon payment upon project completion.
Construction-to-permanent loans convert into long-term financing after the project is complete.

Funding amounts

Construction lenders may not finance 100% of a project.
You’ll usually get 70% to 90% of the total project cost. You’ll cover the remainder, often with a down payment.
Lenders use the loan-to-cost (LTC) ratio or loan-to-value (LTV) ratio to determine how much they’ll offer.
LTC is the percentage of the total project cost a lender is willing to finance; LTV is the percentage of a property’s appraised value they’re willing to lend.

Common fees may include:

Origination or processing fees.
Project review or inspection fees.
Guarantee fees (for SBA loans).
Appraisal fees (often $2,000 to $10,000).
Closing costs.

» MORE: Commercial real estate loan calculator

Where to get a commercial construction loan

You can get commercial construction loans from banks, credit unions, online lenders or private lenders. Some SBA loans, which are issued through financial institutions, can be used for construction too.

Banks and credit unions

Best for: Established businesses with strong credit; low interest rates.

In general, banks and credit unions offer more competitive rates and terms than other business lenders. Business loans from banks and credit unions also tend to be the hardest to qualify for, though. You’ll likely need excellent credit and multiple years in operation.

SBA loans

Best for: Businesses that can’t qualify for bank loans; long terms and large loan amounts.

SBA loans are administered by banks, credit unions and other financial institutions. But they’re backed by the U.S. Small Business Administration, which makes them less risky for lenders.

SBA 504 loans

SBA 504/CDC loans are designed for the acquisition and renovation of fixed assets, like properties.

Available in amounts up to $5 million ($5.5 million for select projects).
Repayment terms of 10, 20 or 25 years.
Low interest rates.
Property under construction serves as collateral.

Unlike some commercial construction loans, which have interest-only payments, SBA 504 loans have a traditional term loan structure. With these loans, you’ll make fixed payments throughout the life of your loan.

SBA 504 loans are issued in three parts:

Bank or credit union (40%).
Certified Development Company, or CDC (50%).
You, the borrower (10%).

You can use the SBA’s website to locate a CDC near you.

SBA 7(a) loans

You can also use an SBA 7(a) loan for construction projects. With these loans, you can expect:

Amounts up to $5 million.
Repayment terms of up to 10 years, up to 25 years for real estate.
Low interest rates.
A possible down payment of 10% or more.

Compared with 504 loans, which must finance a fixed asset, SBA 7(a) loans have more flexibility.

» MORE: What's the difference between SBA 504 vs. 7(a) loans?

Hard money lenders

Best for: Real estate borrowers who need asset-based financing.

Hard money lenders are private companies that specialize in short-term, asset-based loans for commercial real estate and construction projects. These loans are secured by property, such as land or commercial real estate.

Approval is based largely on the value of your collateral, rather than your business’s financials. Because of this, hard money loans can be a good option if you can’t qualify for traditional bank or SBA financing.

These loans tend to be expensive and have short terms, however, with higher interest rates and faster repayment timelines than other options.

Online lenders

Best for: Fast funding for general construction-related expenses.

Online lenders may offer general business loans that can be used for construction costs. These loans are often fast to fund and have more flexible qualification requirements than banks.

Unlike hard money loans, online loans aren’t structured around property value or construction milestones. They’re usually standard term loans or lines of credit with fixed repayment schedules.

These loans typically have higher interest rates and shorter terms — and they’re less likely to offer interest-only payments during construction.

Best commercial construction loans

Product	Max loan amount	Min. credit score	Learn more
SBA CDC/504 loan Apply now with Fundera by NerdWallet	$5,000,000	680	Apply now with Fundera by NerdWallet
SBA 7(a) loan Apply now with Fundera by NerdWallet	$5,000,000	650	Apply now with Fundera by NerdWallet
Bank of America Business Advantage Unsecured Term Loan Nerdwallet Rating 5.0 Apply now with Fundera by NerdWallet	$100,000	700	Apply now with Fundera by NerdWallet
OnDeck - Online term loan Nerdwallet Rating 4.8 Apply now with Fundera by NerdWallet	$400,000	625	Apply now with Fundera by NerdWallet
Fora Financial - Online term loan Nerdwallet Rating 4.7 Apply now with Fundera by NerdWallet	$1,500,000	570	Apply now with Fundera by NerdWallet
National Funding - Equipment financing Nerdwallet Rating 4.7 Apply now with Fundera by NerdWallet	$150,000	600	Apply now with Fundera by NerdWallet
Triton Capital - Equipment financing Nerdwallet Rating 4.0 Apply now with Fundera by NerdWallet	$250,000	575	Apply now with Fundera by NerdWallet

Commercial construction loan requirements

Exact qualifications vary by lender, but you’ll typically need:

Down payment

Usually 10% to 30% of the total project cost.

Strong debt service coverage ratio (DSCR)

Many lenders want to see a DSCR of 1.25 or higher.

Good personal credit

Banks and SBA lenders usually require a score of 690+.
Online and hard money lenders may be more flexible.

Detailed construction plans

Project timeline and milestones.
Contractor agreements.
Cost breakdown and budget.
Architectural plans and permits.

Experience

Lenders may prefer borrowers with previous development experience.

Appraisal and property review

Some lenders require a recent appraisal (often within the last 12 months).

Alternatives to commercial construction loans

Construction business loans are helpful when you’re building from the ground up. But if you’re buying an existing property or undertaking a renovation, consider these alternatives:

If you’re buying an existing property: Commercial real estate loans are also called commercial mortgages because they’re structured like mortgages — you’ll make a down payment on a property and then pay off the loan over time, with the property serving as collateral. These are best for acquiring existing properties that don’t require major renovations.

» MORE: Commercial real estate loan rates

If you’re renovating a property you already own: SBA 504 loans are still a good choice for major renovation projects because of their low interest rates and long repayment terms. But if you want to make small upgrades over time or don’t want to wait on the SBA’s lengthy application process, a business line of credit may offer more flexibility.

Frequently asked questions

Is it hard to get a commercial construction loan?

If you have good credit, development experience and money for a down payment, it shouldn’t be too difficult to get a commercial construction loan. It may be harder, however, if you’re a startup or have a rocky credit history.

Do you have to put 20% down on a construction loan?

Requirements vary by lender, but construction loans often require a down payment of 10% to 30% of the total project cost.

How much can you borrow with a commercial construction loan?

Lenders may not finance 100% of a project. Instead, you’ll usually get a loan equal to 70% to 90% of the total project cost.

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