Commercial Construction Loans

A commercial construction loan funds the building or major refurbishment of a commercial property, and it works differently from a standard mortgage. Rather than landing as one lump sum, the loan draws down in stages as the build progresses, and you pay interest only on the balance drawn, not on the full approved facility.

Most of these facilities are construction to permanent loans: a single facility funds the build, then converts to a long-term commercial term loan once the building is complete. That structure is what lets a growing business move into premises it owns instead of renting. The wider category sits on our commercial property loans hub.

The simplest way I explain it: a commercial construction loan funds one building you intend to use or hold, while a commercial development loan funds a project you intend to build and sell, usually with multiple units.

• A construction loan suits an owner-occupier building their own premises, or a single-asset investor building to hold. It is repaid by converting to a term loan or from business cash flow.
• A development loan suits subdivision or multi-unit projects. It is assessed on the gross realisation value of the finished project, often needs pre-sales, and is repaid from sale proceeds.

If your plan involves subdivision, multiple dwellings, or building to sell, that is development finance, and it is assessed and priced on a different basis. Our commercial development loans page covers that path.

No. A single-asset commercial construction loan, where you are building premises for your own business or to hold as an investment, does not require pre-sales.

Pre-sales and pre-commitments belong to development finance. When a project is built to sell, lenders want a share of the units pre-sold before they fund, to prove the end demand. A single building you will occupy, or lease and hold, is assessed on your serviceability and the as-if-complete valuation instead. If your project does hinge on pre-sales, it is a development loan.

Most commercial construction loans I arrange need a deposit or equity contribution of around 30% of total project cost, because lenders cap construction lending at roughly 70% LVR against the lower of cost or as-if-complete value.

Owner-occupiers building their own premises tend to get the best treatment, and equity in land you already own can count toward the deposit, which cuts the cash you need at the start. Remember the deposit also has to cover stamp duty, valuation and professional report fees before the first drawdown. The eligibility check on this page gives you a quick read on where you sit.

Commercial construction loan rates start from around 6.80% and typically run higher than a standard commercial property loan, by roughly 0.75 to 2.00 percent, because the lender carries more risk while the building is unfinished.

The feature that softens the cost is that you pay interest only on the funds drawn, not on the full approved limit, so the early stages of the build cost less than the headline rate suggests. Once the facility converts to a commercial term loan at completion, it usually reprices to standard commercial pricing. Our commercial property interest rates page sets out the current ranges.

Beyond the deposit, a commercial construction loan carries setup and professional costs you should budget for before the first drawdown. The reports lenders most often require are:

• A quantity surveyor report setting out costs and the progress draw schedule.
• An independent valuation on an as-if-complete basis.
• Structural, geotechnical or environmental reports where the site or build calls for them.

On top of those, lenders want your council-approved plans, the building contract, and evidence of builder insurance. As a rough guide, the professional reports on a typical build run to a few thousand dollars each, so it pays to budget for them early.

Once the building is complete and producing income, you may be able to claim capital works deductions on the construction cost, subject to ATO eligibility. The ATO sets out the rules for capital works deductions, and your accountant can confirm what applies to you.

Tell your lender as soon as you see a cost overrun coming, because the facility was sized to the original budget and a variation has to be funded from somewhere. The usual options are additional equity from you, a top-up if the as-if-complete valuation supports it, or a separate facility for the shortfall.

This is exactly why I build a contingency of around 10 to 15 percent into the funding plan from the start. Where a shortfall is larger, mezzanine finance can sometimes bridge the gap, though it sits at a higher rate.

A commercial construction loan releases funds in stages rather than all at once, and each drawdown is paid after that stage of work is finished and inspected. A typical schedule runs:

• Slab, around 15 percent
• Frame, around 20 percent
• Lockup, around 25 percent
• Fixing, around 25 percent
• Practical completion, around 15 percent

Each drawdown is paid directly to your builder once the lender confirms the stage is complete. The point to watch is cash flow timing: your builder's progress claims need to line up with the lender's drawdowns, so you are not funding the gap yourself. The how it works section on this page walks through the full sequence.

Most lenders strongly prefer a fixed-price building contract from a licensed builder, because it lets them fix their exposure to the project. A cost-plus or open-ended contract is harder to fund, and where a lender will consider one, it usually means a lower LVR and a higher rate.

With a fixed-price contract, lenders treat the application as lower risk and the terms reflect that. If a cost-plus arrangement is unavoidable, expect to provide a detailed quantity surveyor report and a larger contingency. I tell clients to confirm the contract type works for funding before they sign, because the contract is hard to change afterwards.

Yes. Commercial renovation and refurbishment finance is available for upgrading an existing commercial property, and it works on the same staged-drawdown basis as a ground-up build.

Lenders assess the current property value plus the cost of works against the projected value once complete, and typically lend against the lower of the two. Structural changes need council-approved plans, while lighter cosmetic upgrades are simpler to fund. The same fixed-price contract and valuation principles apply as they do to a new build.

Most commercial construction loans move from application to formal approval in around 4 to 8 weeks, which is longer than a standard property loan because there are more moving parts to verify. A typical timeline runs:

• Initial assessment, a few days
• Valuation and quantity surveyor review, one to two weeks
• Credit assessment, about a week
• Legal documentation, one to two weeks
• Formal approval, a few days

The single biggest time-saver is starting early. I tell clients to begin the finance conversation during the planning or DA stage, so approval is ready when construction is due to start. A complete application, with plans, the building contract and financials ready, moves noticeably faster.

Yes, and owner-occupier construction is one of the strongest positions you can be in. Lenders view a business building premises it will occupy as lower risk, which often means a lower deposit, a sharper rate, and a longer term once the loan converts.

To be treated as owner-occupier, your business generally needs to occupy at least 51 percent of the completed building. These facilities can often fold in fit-out costs so you move straight into a purpose-built space. Our owner-occupier commercial property loans page covers the wider category.

Lenders require construction insurance in place before the first drawdown, and it protects both you and the funder while the building is exposed. The cover they usually ask for is:

• Contract works insurance over the building during construction
• Public liability cover
• Builder's warranty or home indemnity cover where it applies

Your lender is noted as an interested party on the policy, and the cover has to be maintained for the whole build. Your builder usually carries most of this, but confirm it is in place and current before work starts.

Yes. We are based on the Gold Coast and arrange commercial construction loans across Australia, drawing on a national panel of more than 60 lenders. Where you are building rarely limits the finance: lender appetite and the local valuation matter more than the postcode.

If you are building in a major capital, it pays to understand the local market before you commit. Our market overviews cover the Sydney, Melbourne and Brisbane commercial property markets.

A commercial construction loan has more moving parts than a standard loan: staged drawdowns, the building contract, the as-if-complete valuation, and the exit to a term loan. A commercial loan broker who writes these regularly knows which lenders on the panel will fund your build, and on what terms, before you apply.

Going direct to one bank means one view of your deal. We pre-screen your build against the lenders most likely to back it, structure the drawdowns and the exit around your contract, and keep the application tidy so it does not bruise your credit file with repeated knockbacks. On a build, where timing and cash flow are tight, that coordination is most of the value.

The eligibility check on this page gives you a quick read on the factors lenders weigh most heavily, and the construction loan calculator shows your likely peak debt and repayments. Both run on the page in under a minute.

For a deal-specific assessment that factors in your actual site, build and timeline, call us on [sbp_phone] or book a free consultation. We have arranged over $550 million in commercial finance for 3,300+ Australian businesses, with commercial construction among the work we do most.