| Detail | Explanation |
|---|---|
| Sponsor | Completed projects of similar type and size, plus liquidity for cost overruns |
| Site | Owned or under contract, zoned for the use, with entitlements approved |
| Cost | Hard and soft cost budget with contingency, tied to a signed construction contract |
| Equity | Usually funded before the first loan draw, in cash or approved land value |
| Guaranties | Completion, carry, and often repayment or carve-out guaranties |
| Exit | A permanent loan or sale supported by stabilized income |
How to use this checklist
This page lists what construction lenders ask for. For the reasoning behind each item, such as how lenders treat land basis, contingency, and takeout sizing, read how commercial construction lenders underwrite. Requirements vary by lender and property type, so treat each table as the baseline a first submission should meet.
What are the sponsor requirements for a construction loan?
Construction lenders underwrite the people as closely as the project, because the sponsor and guarantors stand behind a completion guarantee and fund any shortfall.
| Requirement | What lenders look for |
|---|---|
| Development track record | Completed projects of the same property type, similar scale, and similar construction method, with budget and schedule results |
| Development team | A general contractor, architect, engineer, and property manager with relevant experience where the sponsor lacks it |
| Liquidity | Unencumbered cash after the equity is funded, enough to cover overruns and carry during delays |
| Net worth | Balance sheet strength that supports the guaranties, net of obligations on other projects |
| Contingent liabilities | A schedule of every guaranty and loan the sponsor already carries, with maturities |
| Credit and background | Clean credit and background reports on principals, with explanations for any past events |
| Guaranties | Willingness to sign a completion guaranty, a carry guaranty, and any repayment or carve-out guaranty the lender requires |
What site and entitlement documents do lenders require?
| Document | What lenders look for |
|---|---|
| Deed or purchase contract | Ownership or a contract that closes with the loan, plus the settlement statement showing land basis |
| Zoning verification | The planned use and density permitted by right or by an approval already granted |
| Entitlements and conditions of approval | Final approvals, conditions that add cost, and any appeal periods still open |
| Building permits | Issued permits or a clear path to issuance before the first draw |
| Utility will-serve letters | Water, sewer, power, and gas capacity committed to the site |
| ALTA survey | Boundaries, easements, access, and flood zone |
| Phase I environmental report | No unresolved recognized environmental conditions |
| Geotechnical report | Soil conditions that match the foundation design and budget |
What budget and contract documents are required?
Construction lenders fund against a budget, so the budget and the contract have to agree line by line. Many lenders prefer a guaranteed maximum price contract because it moves part of the cost risk to the contractor.
| Document | What lenders look for |
|---|---|
| Sources and uses | Every cost and every source of funds, balanced and matching the budget |
| Hard cost budget | Line items supported by bids or a contractor estimate |
| Soft cost budget | Design, permits, impact fees, legal, insurance, taxes, marketing, and financing costs |
| Contingency | Hard and soft cost contingency sized to the stage of design and bidding |
| Construction contract | Contract type, price, schedule, allowances, exclusions, retainage, and change-order process |
| General contractor package | License, financial statements, bonding capacity, insurance, and references |
| Plans and specifications | Permit-ready drawings that match the contract scope |
| Construction schedule | Milestones from site work through certificate of occupancy |
| Architect and engineer agreements | Scope, fees, and consent to assignment to the lender |
How much equity does a construction loan require?
Construction loans are sized mainly by loan-to-cost, checked against the as-completed or as-stabilized value. The borrower funds the difference between total project cost and the loan, and most lenders require that equity to go in before the first loan dollar.
In this hypothetical example, total project cost is $20,000,000 and the lender advances 65% of cost. The loan is $13,000,000 and the sponsor must fund $7,000,000 of equity, or 35% of cost.
| Item | Amount |
|---|---|
| Total project cost | $20,000,000 |
| Loan at 65% of cost | $13,000,000 |
| Required sponsor equity | $7,000,000 |
| Equity share of cost | 35% |
What equity documentation will the lender ask for?
- Bank or brokerage statements showing the cash equity
- Settlement statement and appraisal support for any land contributed as equity
- Paid invoices for predevelopment costs claimed as equity
- Investor subscription documents or capital call rights for outside equity
- Terms of any subordinate debt or preferred equity in the capital stack
Which third-party reports does the lender order?
The borrower pays for these reports, but the lender engages the providers and relies on the results.
- Appraisal with as-is land value and as-completed or as-stabilized value
- Plan and cost review by an independent construction consultant
- Phase I environmental site assessment, plus a Phase II if the Phase I recommends one
- Title commitment and ALTA survey
- Zoning report where the lender does not rely on the municipality's letter
- Market study for lease-up or sale assumptions on larger projects
What must be in place before closing and the first draw?
- Builder's risk, general liability, and contractor insurance naming the lender
- Payment and performance bonds or other contractor security if required
- Contractor, architect, and engineer consents to assignment
- Borrower equity funded and verified
- Interest reserve and any other reserves funded from the budget
- Building permits issued
- An agreed draw process with the inspecting consultant, lien waiver requirements, and retainage terms
What exit do construction lenders require?
The lender wants to see how the loan gets repaid when construction ends. For a hold, that means stabilized net operating income that would support a permanent loan at the construction loan balance. For a sale, it means market evidence for the sale price and time to sell. Pre-leasing, a signed lease with a creditworthy tenant, or a forward purchase commitment strengthens the exit, and some lenders require one of them for speculative projects.
Submitting a construction request
A request does not need every item above to start a lender conversation, but it needs the sources and uses, budget, site status, entitlement status, and sponsor track record. Capital Partners arranges commercial construction loans within its $1M to $100M range and reviews each project against the lenders active for that property type and market. Submit the project for a principal's review to learn which items lenders will question first.
Common questions
What do you need to get a commercial construction loan?
You need a controlled and entitled site, permit-ready plans, a detailed budget with contingency, a signed contract with a qualified general contractor, equity to fund ahead of the loan, and a sponsor with relevant experience and liquidity. Lenders also require guaranties and a clear exit through a permanent loan or sale.
Can land count as equity on a construction loan?
Often, yes. Lenders credit owned land toward the equity requirement, but each lender decides whether to credit the original cost or the appraised value. Recently acquired land usually receives credit closer to its purchase price.
Do I need building permits before closing a construction loan?
Most lenders require issued permits before closing or before the first construction draw. Some will close with permits pending when the only remaining steps are administrative, and hold loan funds until the permits are issued.
Do construction lenders require a general contractor?
Almost always. Lenders want a licensed, insured, and financially capable general contractor under a signed contract. A sponsor that acts as its own contractor needs a track record doing so, and the lender may require extra guaranties or bonding.
What guaranties does a construction loan require?
A completion guaranty is standard, and many lenders also require a carry guaranty covering interest, taxes, and insurance until stabilization. Banks often add a full or partial repayment guaranty, while some non-bank lenders limit recourse to carve-outs.
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