Commercial Construction Financing: A Guide to Funding Your Building Project

Key Takeaways

• Commercial construction financing is capital used to build or renovate commercial properties, typically available through bank loans, SBA loans, credit unions, or private/hard money lenders.
• Traditional bank construction loans usually require a minimum 10% down payment, with fixed and variable rate options and repayment terms up to 25 years.
• SBA 504 and SBA 7(a) loans offer financing up to $5 million, with down payments typically ranging from 10% to 20%.
• SBA 504 loans split funding between a Certified Development Company (about 40%) and an SBA-approved lender like Customers Bank (about 50%), making them well suited for new construction, expansions, and major renovations.
• SBA 7(a) loans are more flexible, usable for working capital, equipment, real estate, or construction, and are best suited for established businesses with good credit.
• Qualifying generally requires personal and business credit scores in the high 600s or above and a debt-to-income ratio of 43% or less.
• Customers Bank is an SBA-approved lender offering commercial construction financing and guidance through the application and approval process.

What Is Commercial Construction Financing?

Commercial construction financing refers to the capital businesses use to cover the costs of constructing or renovating a commercial building. This financing is available through banks, credit unions, and private lenders (also called hard money lenders). Some banks, including Customers Bank, are also SBA-approved to issue SBA loans of up to $5 million that can be used toward construction costs.

Types of Commercial Construction Financing

Bank Loans

A traditional commercial construction loan from a bank or credit union is one of the most common forms of commercial construction financing. While terms vary by lender, here’s what’s typical:

• Down payment: Minimum of 10%
• Rate structure: Fixed and variable rate options available
• Repayment terms: Up to 25 years

SBA Loans

For small businesses that don’t have access to the same financing options as larger companies, SBA-backed commercial construction financing can help close that gap with lower down payments, competitive interest rates, and more flexible lending requirements. Two programs are worth knowing:

SBA/CDC 504 Loans

Provides long-term financing of up to $5 million for new commercial property construction, expansions, renovations, or other improvements. Funding typically comes from two sources: a Certified Development Company (CDC) approved by the SBA covers about 40%, and another SBA-approved lender, such as Customers Bank, provides about 50%. Borrowers generally contribute a 10% to 20% down payment.

SBA 7(a) Loans

Available as short- or long-term financing, generally with low interest rates, up to $5 million. Funds can be used for working capital, equipment, supplies, real estate, construction, or business expansion. This program is best suited for established businesses with good credit and typically requires a 10% to 20% down payment. Some lenders structure 7(a) loans like traditional construction financing, paying out funds at specific project milestones while borrowers pay interest only until construction is complete.

The SBA program includes several loan types, so it’s worth speaking with an SBA loan expert to determine which type of commercial construction financing fits your business.

How To Qualify for Commercial Construction Financing

Credit scores. Lenders review both personal and business credit. Requirements vary, but most look for scores at least in the high 600s.

Industry experience and financials. Lenders also evaluate your business background and current financial standing to assess overall qualifications.

Debt-to-income ratio (DTI). Calculate your DTI by dividing your total monthly debt payments by your gross monthly income. Most lenders look for a DTI of 43% or less; a lower ratio signals lower risk and can improve your approval odds.

Frequently Asked Questions

What is commercial construction financing?

Commercial construction financing is capital provided by banks, credit unions, SBA-approved lenders, or private lenders to cover the cost of building or renovating a commercial property.

What credit score is needed for commercial construction financing?

Most lenders look for personal and business credit scores in the high 600s or higher, though requirements vary by lender and loan type.

What is the maximum SBA loan amount for commercial construction financing?

Both SBA 504 and SBA 7(a) loans offer financing of up to $5 million for construction-related costs.

What down payment is required for commercial construction financing?

Traditional bank loans typically require a minimum 10% down payment. SBA 504 and 7(a) loans generally require 10% to 20% down.

Speak with Customers Bank

Customers Bank offers commercial construction financing to help you reach your building goals, with comprehensive funding solutions for small business owners. This extends from SBA loans through to  working lines of credit. Consult with one of our knowledgeable loan officers for guidance through the application and approval process.

If you have a construction project you’d like to discuss financing for, get in touch to speak to a member of the team today.