Commercial Construction Loans in 2026: Rates, Requirements, Draw Schedules and Lenders

In 2026, many deals run from $2M to $50M, pricing is about SOFR plus 250 to 500 basis points, and equity requirements start around 20% to 35% of total cost. If your project is owner-occupied, SBA 504 can sometimes push leverage higher. If your scope is smaller or the property is already stabilized, another structure may fit better. For a broad overview of how these loans work, start with Bridge's commercial construction loans overview.

Key takeaways

• Commercial construction loans run $2M to $50M and often price around SOFR plus 250 to 500 basis points.
• Expect 20% to 35% equity, or lower equity under SBA 504 for eligible owner-occupied projects.
• Funds release through draws tied to inspected milestones, not one lump sum.
• A $19.2M, 120-key ground-up hotel can layer senior debt, C-PACE, and sponsor equity.
• Ground-up loans carry more recourse and risk than renovation or value-add financing.

Commercial construction loan types and rates by lender in 2026

Pricing turns on lender type, recourse, and leverage. Banks and debt funds price construction loans over SOFR, in the SOFR plus 250 to 500 basis point range, consistent with NerdWallet's overview of commercial construction loan options. On a $12.48M senior loan like the hotel example below, priced at SOFR plus 325 basis points (about 6.9% all-in at September 2026 SOFR), that spread decides whether the deal still works after fee load, reserves, and equity.

Rates in this guide are as of September 15, 2026: WSJ prime 6.75%, unchanged since December 2025; 30-day average SOFR 3.65%; the SBA 504 25-year debenture at 6.54% from September 10 pricing; and 10-year hotel CMBS at 6.48%-6.88% per Northmarq's August 25, 2026 spreads. Bank, bridge, life company, C-PACE and mezzanine ranges are indicative quotes from Bridge's lender network for the same date and move with sponsor strength and leverage.

The gap between a bank at 60% to 70% LTC and a debt fund at 75% matters. It matters most on hotel deals, where Bridge's guide to hotel lenders by deal type breaks down which lender type fits each phase of a ground-up build.

What is a commercial construction loan, and who needs one?

A commercial construction loan is short-term, interest-only debt that funds the ground-up build or major renovation of a commercial property. Funds release in draws as work completes and gets inspected, then the loan converts or gets refinanced once the property is stabilized and generating income.

You use this structure when there is no operating history for a lender to underwrite. A multifamily sponsor building 80 units, a hotel developer breaking ground on a new-build property, and a manufacturer expanding its own facility all need staged capital priced for an unfinished asset. Many deals in this category fall between $2M and $50M in total project cost, though Bridge's commercial construction loans overview covers smaller and larger projects too. Below $2M, a business line of credit or equipment financing often does the job with less paperwork. Above $50M, the deal moves into syndicated or institutional territory with a different lender pool.

What fees come with a commercial construction loan?

Construction loans carry more fees than a standard term loan because the lender is managing an active build, not a static asset. Budget financing costs outside the hard-cost budget. Do not assume they fit inside it.

On the $12.48M senior loan in the worked hotel example, a 1% origination fee is $124,800, due at closing before the first draw funds. That fee sits on top of the equity you are already putting in, so budget it separately from construction cost.

What are commercial construction loan requirements?

Construction lenders underwrite the plan and the sponsor, not existing cash flow. That shifts diligence toward experience, contracts, and reserves, not trailing financials.

Expect a lender to require:

• Equity minimum: 20% to 35% of total project cost, though SBA 504 can lower the equity requirement for eligible owner-occupied projects
• Sponsor track record: prior completed projects of similar size and asset type, with references
• Signed general contractor contract: fixed-price or guaranteed maximum price, not a placeholder estimate
• Permits and entitlements: fully approved before closing, not still in process
• Pro forma underwriting: a projected stabilized debt service coverage ratio, usually above 1.25x
• Liquidity reserves: enough cash outside the deal to cover 6 to 12 months of interest during lease-up

If your equity comes from the sponsor alone, an LLC formed for the project, or a blended structure with mezzanine capital, the documentation changes. The hotel construction loan requirements checklist also covers the appraisal, environmental report, and feasibility study most lenders require before underwriting starts.

Commercial construction financing: the full capital stack

Most ground-up commercial builds use more than one source of capital because senior debt alone rarely covers the full project cost at a leverage point you can live with. The usual stack starts with senior construction debt, then a gap layer such as C-PACE, mezzanine debt, or preferred equity, with sponsor equity below that.

Here is the $19.2M hotel example used through this article:

C-PACE, Commercial Property Assessed Clean Energy financing, pays for qualifying HVAC, envelope, and water-efficiency improvements and repays through a property tax assessment. That is why it can sit outside the senior loan's lien position without competing for it. Mezzanine debt and preferred equity fill a similar gap when C-PACE does not apply.

Once your hotel reaches stabilized occupancy and a qualifying DSCR, that stack gets replaced. The senior construction loan pays off through a refinance into permanent debt, most often CMBS financing or a life company loan with a lower rate and longer amortization schedule.

Ground-up construction loans: how do they differ from renovation and value-add builds?

Ground-up construction loans carry more risk, more recourse, and slower draw pacing than renovation or value-add financing because there is no existing structure or income to fall back on. A renovation loan funds improvements to a property that is already standing and often partially occupied, which gives the lender collateral value from day one.

That difference shows up in three places:

Recourse. Ground-up loans on commercial and investor builds often carry full or partial recourse to the sponsor because the lender has no completed asset to seize if the project stalls. Renovation and value-add loans, especially on a property with existing cash flow, can get non-recourse carve-outs.

Draw pacing. Ground-up draws follow a strict schedule tied to foundation, framing, mechanical rough-in, and finish milestones, each verified by an independent inspector. Renovation draws move faster because the scope is narrower and the existing structure limits how much can go wrong between inspections.

Risk pricing. Lenders price ground-up construction financing at the wider end of the SOFR plus 250 to 500 basis point range. Value-add renovation loans on a partially leased property may land tighter because existing income offsets part of the construction risk. Bridge's full breakdown of commercial construction loans covers how lenders draw that line project by project.

How does a commercial construction loan draw schedule work?

A draw schedule releases loan proceeds in stages as construction hits pre-agreed milestones, verified by a third-party inspector before each disbursement. The lender holds back a retainage percentage, typically 5% to 10%, until the certificate of occupancy is issued and punch-list items are resolved.

Here is the draw schedule modeled on the $12.48M senior loan in the hotel example: eight progress draws with 10% retainage held on each, then the retainage release at certificate of occupancy. Net funded amounts sum to $11,232,000 and the release returns the $1,248,000 held back, so the schedule balances to the full commitment.

Interest accrues only on funds actually drawn, not the full $12.48M commitment. That is why your effective interest cost early in a 16-month build is much lower than the face amount suggests. For the full mechanics of how draws get requested, inspected, and funded, see Bridge's dedicated guide to construction loan draw schedules.

Worked example: financing a $19.2M ground-up hotel construction loan

Here is how the numbers in this article resolve on one deal. You are an experienced operator building a 120-key limited-service hotel from the ground up in a secondary MSA, targeting a national brand flag.

Project cost: $19.2M total, or $160,000 per key.

Senior loan: $12.48M at 65% loan-to-cost, priced at SOFR plus 325 basis points. This is the first-lien piece funding most hard and soft costs.

C-PACE layer: $2.4M, or 12.5% of total cost, covering HVAC, building envelope, and water-efficiency systems that qualify under the state's C-PACE program. This fills part of the gap between the senior loan and the equity check, without diluting the sponsor's position or adding recourse.

Sponsor equity: $4.32M, or 22.5% of cost. These are the last dollars in and the first at risk if the project underperforms.

Origination fee: 1% of the $12.48M senior loan, or $124,800, due at closing before the first draw funds.

Draw schedule: eight progress draws over a 16-month construction period, each tied to an inspected milestone, with 10% retainage ($1,248,000 in total) held back and released at certificate of occupancy.

Take-out: Once the hotel stabilizes, you target a 1.35x DSCR and refinance the $12.48M senior loan into CMBS or life company debt at 65% LTV, within 6 to 9 months of receiving the certificate of occupancy.

A disciplined stack keeps sponsor equity near 20% to 25% of cost even on a full ground-up hotel build, with C-PACE absorbing part of the gap the bank will not fund. From the first draw at 10% complete to the final retainage release at certificate of occupancy, the $19.2M stack never asks you to carry much more than a quarter of total project cost in cash. For hospitality-specific underwriting detail, including how lenders treat RevPAR projections and brand PIP scope, see Bridge's hotel construction loans page.

What are alternatives to a commercial construction loan?

A traditional construction loan is not always the best structure. These alternatives fit narrower situations better.

• Choose SBA-only financing if your project is owner-occupied and you want higher leverage with a relatively low equity injection. This fits an owner-operator building its own facility, not an investor building to lease or sell.
• Choose C-PACE-only funding if the qualifying energy and water-efficiency scope is large enough to cover a meaningful share of cost, and you already have senior debt or cash for the rest. It does not replace a construction loan on its own, but on select renovation-heavy projects it can reduce how much senior debt you need.
• Choose seller or developer financing if a landowner or development partner is willing to carry a note on land or a partially built structure. This reduces the amount of third-party debt needed at the start and appears more in smaller, relationship-driven deals.
• Choose mezzanine debt if you have already maxed out senior loan leverage but do not want to bring in additional equity partners. It sits behind the senior lender, carries a higher rate, with coupon rates running from 11.0% to 12.5%, and fills the same gap C-PACE fills on projects without qualifying green scope.

When is this the wrong tool?

Avoid a commercial construction loan if the tradeoffs below already describe your deal.

• Avoid it if the property is already stabilized and cash-flowing. Refinance with permanent CMBS or life company debt instead of paying construction-loan pricing for an asset that no longer carries construction risk.
• Avoid it if the renovation scope is under $500,000. A business line of credit or equipment financing involves far less documentation.
• Avoid it if you need non-recourse debt. Most bank construction loans require a personal or corporate guaranty, while some private debt funds and life company take-outs offer non-recourse terms.
• Avoid it if you do not have 6 to 12 months of carrying-cost reserves. Lenders want to see reserves that cover interest during lease-up, not just enough cash to close.
• Avoid it if entitlements or the GC contract are not final. Construction lenders will not fund before permits are issued and a fixed-price contract is signed.

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