What is a commercial construction loan?

A commercial construction loan provides financing to develop or significantly renovate a commercial property. Unlike permanent loans, construction loans are typically interest-only and fund in draws as construction milestones are met, verified by an inspector. Terms are usually 12–36 months. Because the property does not yet generate income, lenders evaluate the sponsor's experience, the project's feasibility, pre-leasing activity, and the borrower's financial strength. LTVs are based on the projected completed value. Once construction is complete and the property reaches stabilized occupancy (typically 85–90%), the borrower refinances into a permanent loan. Mini-perm loans can serve as both construction and short-term permanent financing.