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Which Lenders Are Best for Commercial Construction Loans?

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Business expansion is undoubtedly necessary for growth. However, of course, this would cost a fortune for newly emerging businesses, making it impossible to pay upfront. 

In this case, taking out commercial construction loans would be their best bet, followed by choosing the suitable type of loan for the business.

However, like any other type of loan, there are several relevant points you would need to consider and understand before taking a commercial construction loan. 

With that said, this article will discuss everything you need to know about getting commercial construction loans. Check it out below.

What Is a Commercial Construction Loan?

The commercial construction loan is a type of loan used to finance construction or renovation costs, including labor and materials for property expansion, development of a new property, and renovation. 

When purchasing already built properties, business owners can opt for a commercial mortgage. However, when it comes to starting from scratch or renovating an existing property, it can be costly and run from a hundred thousand to millions of dollars. 

As a result, business owners would need assistance from a commercial construction loan. However, with this, owners will not have to cover the expenses as financers will provide funds for the whole construction process instead.

How Does It Work?

Instead of receiving the whole amount of money upfront like other loans, such as commercial mortgages, only a portion of the entire amount will be given every time the project finishes a task. 

As a result, they need to create a draw schedule with the lender when a business owner takes a commercial construction loan. 

For example, to start the process, only a certain amount will be released for land clearing. So, as soon as it is finished, another amount will be released to pay for the foundation.

With a commercial construction loan, you will pay interest every time a portion is released. So even if your total loan is 1 million dollars, if the lender has only released $250,000, you will only pay for the latter’s interest until you have used up the whole amount. 

After this, you can pay the principal in full as soon as the construction is finished or opt to take a commercial mortgage, declaring the property as collateral. 

This way, the remaining balance will be paid off by the funds from the commercial mortgage, and you can settle with lower and more affordable monthly dues.  

Types of Commercial Construction Loans

After going through the basics of commercial construction lending, here are some types of commercial construction loans to consider:

Small Business Administration (SBA) CDC/504 Loan Program

This is one of the most preferred commercial construction loans because of its affordable down payments. In addition, the credit scores are above the 600s, and interest rates are based on US market rates. 

With this, business owners are provided up to $5 million, and SBA-certified development companies will cover 40% of the construction costs. 

Meanwhile, a different financer will cover the other 50%. Then, the final 10% will be paid by the business owner. Overall, the entire amount can be repaid for up to 20 years.

Small Business Administration 7(a) Loan Program

For this type of loan, business owners can borrow up to $5million and repay for up to 25 years as long as they have a high 600 credit score and pay 10% to 20% down payment. In addition, the interest rates are prime rate based with an additional 2.75% maximum.

Mezzanine Loans

This type of commercial construction loan is secured by stock. So, whenever the business owner defaults, the financer may convert it to an equity stake. This way, business owners can reach up to a 95% loan-to-cost ratio. Mezzanine loans are commonly used as a way to finance development projects that need large capital. If these loans are the ideal ones for your situation, you can check this development finance guide for more information.

Bank Loans

This one is the traditional commercial construction loan. Therefore, the rates, repayment, and down payment terms will vary for every borrower. 

Nonetheless, the usually required minimum down payment is around 10%, and the repayment process can go up to 25 years. 

Best Commercial Construction Lenders 2021

To assure that you’ve subscribed to a reputable loan lender for your business, here are some of the top commercial construction lenders for the year 2021:


BuildBuyRefi, being a division of Magnolia Bank, has over 100 years of experience and an A+ rating from the Better Business Bureau. 

Aside from being authorized to lend money in all 50 states, its loans are characterized by low down payments and interest rates. Moreover, they can fund the whole construction in a single-rate locked loan, not to mention their customer service is incredible.

TD Bank

This is one of the largest banks in the US, with branches at over 1,250 locations. Overall, TD Bank is known for its flexible terms and low down payments. 

In addition, clients are also given the freedom to opt for a fixed or flexible rate for their loan. Therefore, this is the perfect choice for clients who value experience and convenience.

FMC Lending

FMC Lending is a California-based lending company operating since 2005 that offers equity-based deals with a specialization in custom loan solutions. 

It offers residential, construction, commercial, and land loans. Moreover, it is suitable for those who are self-employed, have unstable incomes, and have lower credit scores.

Wells Fargo

Perfect for first-time borrowers, Wells Fargo is a famous bank with a long history that dates back to the 1800s. Aside from this, the company has individual mortgage consultants that can be reached online or via calls. 

In addition, they also have an Extended Rate Lock Program. This program locks up your interest rate, keeping it at the same rate for up to 24 months while you choose a suitable type of loan and builder.

Of course, these are only a few of the numerous companies that you can go to. There are more options available, so make sure to do your research and compare different lenders before committing to one.


As of the moment, there are many emerging businesses in the industry. As a result, to keep your head up the game, it is essential to keep your business growing and expanding. 

Fortunately, many companies are now willing to help you reach greater heights. Therefore, all it takes is getting yourself equipped with sufficient knowledge of the processes involved. 

More on this topic:

Why Seek Help From A Loan Service Company

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