Analyze construction loan feasibility, model your draw schedule, track budget vs. actual, and assess lender qualification — all in one place.
📖Construction Loans — How They Work & How to Use These Tools
Important Note
Nothing on this site constitutes a credit decision or a discouragement from applying for credit. Every person has the right to apply for any loan from any lender. These tools are for education and project planning only. Contact lenders directly to understand their specific requirements.
What Is a Construction Loan?
A construction loan is fundamentally different from a permanent mortgage or business loan. Rather than a lump sum disbursement, the loan amount is drawn down in stages as construction progresses. You only pay interest on the amount drawn — not the full approved amount — keeping your cash outflow manageable during the build phase.
When construction is complete, the construction loan is replaced by permanent financing (a term loan or mortgage). This can be a separate application or a "construction-to-permanent" (C2P) loan that converts automatically at certificate of occupancy.
🏢 Owner-Occupied
Your business will use the building. Repayment based on business cash flow (DSCR). SBA 7(a) and 504 programs available. Typically 10–20% equity required.
🏗️ Investment / Income
Built to lease to others. Repayment based on stabilized NOI. No SBA. Typically 20–30% equity required. Pre-leasing often required (50–70% of building).
How the Draw Process Works
Draws are disbursements from your approved loan as construction milestones are completed. Banks don't pre-fund future work — money follows completed work, verified by a bank-hired inspector before each draw is released.
Draw schedule tip: Build your draw schedule with your general contractor before you apply. Draws typically align with construction phases (site prep, foundation, framing, etc.). Budget 30–60 days for the first draw to clear — inspectors are thorough at project start.
If You're a Contractor — The Self-Perform Question
One of the most common situations lenders scrutinize is when the borrower is also a contractor who wants to perform some or all of their own construction work. Banks view this carefully for legitimate reasons — it creates a conflict of interest around draw requests and completion risk.
That said, it can be done. Here's how lenders and contractors make it work:
01
Treat yourself as a vendor — bill everything formally
Create formal subcontractor agreements between your construction company and the borrowing entity, just as you would with any third-party vendor. Issue invoices. Lenders need a paper trail that looks like an arm's-length transaction.
02
Document your contractor credentials extensively
Your contractor's license, bonding, insurance, and a portfolio of prior completed projects comparable in scope to the proposed project. The more similar projects you've completed on time and on budget, the more comfortable a lender will be with self-perform work.
03
Accept additional oversight — construction monitor
Most lenders financing self-perform work will require an independent construction monitor (hired and paid by the borrower) who verifies all draw requests. This is additional cost but removes the conflict-of-interest concern around draw verification.
04
Expect higher equity requirements
Lenders compensate for self-perform risk by requiring more skin in the game — often 25–30% equity vs. 20% for a third-party GC scenario. This is negotiable with a strong track record but expect it as the starting point.
05
Show completion — not just capability
Lenders want to know the project will be completed. Provide a detailed project schedule, a completion bond if possible, and references from prior project owners who can verify your track record of on-time delivery.
⚠️ Key point: Some lenders will not do contractor-as-borrower construction loans regardless of financial strength or track record. This is an institutional policy decision, not a reflection on you. The solution is to find a lender who will — community banks and SBA lenders tend to be more flexible than large institutions on this point. Contact multiple lenders and be upfront about the self-perform component from the first conversation.
About This Tool Suite
📋 Feasibility Analysis
Enter project costs, financing, and projected income. Calculates LTC, LTV, stabilized DSCR, estimated construction interest, and permanent loan payment. Identifies whether the project meets standard lending thresholds.
💰 Draw Schedule
Build a phase-by-phase draw schedule. Tracks cumulative amounts drawn, remaining availability, and estimated monthly interest at each stage. Print-ready for lender submission.
📊 Budget vs. Actual
Track construction costs against budget by category. Calculates percentage complete, remaining budget, and projected final cost with an automatic over-budget alert.
✅ Lender Qualification
Assess your project against common lender qualification factors — experience, credit, LTC, LTV, liquidity, net worth, and GC structure. Provides specific, actionable feedback on each factor.
📌 Construction loans are underwritten differently than permanent loans. The lender evaluates both the construction phase (interest-only draws) and the permanent loan (DSCR on stabilized NOI). Both must work independently. This tool models both.
🏗️Project Information
🏦Financing Structure
📈Stabilized Income (After Completion)
Feasibility Summary
⚠️ Educational only. Construction loan underwriting varies significantly by lender, project type, and market conditions. Consult a commercial lender before making any project decisions.
💰Construction Draw Schedule
Draw #
Description / Phase
Amount Requested
Inspection Required
Cumulative Drawn
Remaining
Interest (Monthly)
TOTALS
$0
$0
📊Budget vs. Actual Cost Tracker
Cost Category
Budgeted Amount
Amount Spent to Date
Remaining Budget
% Complete
Projected Final Cost
TOTALS
$0
$0
$0
0%
$0
📌 Construction lenders evaluate borrowers differently than permanent lenders. Experience, liquidity, and net worth are weighted heavily — often more than DSCR during the construction phase.