SBA Commercial Construction Loans

How SBA Construction Financing Works

Unlike conventional commercial construction loans (which typically require 25-35% equity and a hard takeout loan), SBA construction can be structured with as little as 10-15% borrower equity rolling into a 25-year fixed permanent. The trade-off is more complexity during the construction period: monthly draws against a budget, inspector sign-offs, and contingency holdbacks.

504 Construction Structure

The bank funds the entire project cost during construction as a "third-party loan with permanent take-out commitment." At certificate of occupancy and the borrower's business occupying 60%+ of the property, the CDC funds the SBA debenture and pays down the bank loan to 50% LTC. The borrower's 10-15% equity remains. The final structure is the standard 50/40/10 (or 50/35/15 for special-purpose).

7(a) Construction

For smaller construction projects (under $5M), the 7(a) can fund construction directly as a single loan. Draws are processed against a budget and project schedule. This single-loan structure is simpler but lacks the 504's 25-year fixed permanent.

Required Documentation

• General contractor selected and contracted (or self-built operator with track record)
• Detailed construction budget and timeline
• Building plans approved by local jurisdiction
• Builder's risk insurance during construction
• Performance and payment bonds (typically required on larger deals)
• Pro forma cash flow for the operating business after CO