The land went under contract in March, and from that day the developer's calendar filled with dates that would not move: a 90-day due-diligence window, a 60-day price hold from the general contractor, and permanent financing that would need to close within weeks of the certificate of occupancy. A construction loan is the piece that has to bend around all of them — which is why it gets planned backward from completion, not forward from the application.
Construction financing is less a single loan than a sequence of stages, and each stage has its own clock. The walkthrough below follows a ground-up project from the first sizing conversation to the permanent take-out: what happens at each step, what the lender needs from you, and how long each one realistically takes.
The Shape of Construction Debt
A commercial construction loan is a short-term facility — commonly 12 to 24 months, with extension options — that funds land, hard costs, and soft costs in stages as the work progresses. Six structural facts are worth knowing before you talk to anyone:
- Loan-to-cost, not loan-to-value. Lenders fund a percentage of total project cost — land, construction, soft costs, contingency, and interest reserve combined — and that number commonly lands between 65% and 80%. The rest is your equity, typically 20% to 35%.
- Interest reserve. A slice of the loan proceeds is set aside to pay interest as it accrues, so carrying costs during construction do not come out of pocket.
- Draws. Money is released in stages, after each milestone is inspected, rather than handed over at closing.
- Recourse is normal. Personal guarantees are standard on construction debt; this is not the corner of the market where non-recourse dreams live.
- The take-out matters as much as the loan. Lenders want a defined repayment event, usually permanent financing at completion — more on that in Step 7.
- Underwriting uses the as-completed value. The appraisal supports the finished building, not the vacant lot.
This is a different animal from the permanent commercial real estate loans most borrowers already know. Here, the drawings and the budget are as much of the collateral story as the dirt.
The structure exists because both sides carry risk until the building is done. The lender's exposure peaks when the shell is up and the income has not started; your equity peaks when the interest reserve empties out. Stepped draws, retainage, and the take-out requirement are all mechanisms for keeping both parties honest through that stretch.
Step 1 — Size the Deal Before You Commit
What happens now. Before any application, a construction lender tests the project against a total cost stack: land, hard construction, soft costs like architecture, engineering, and permits, a contingency commonly of 5% to 10%, and the interest reserve. The loan comes out as a percentage of that total, and the difference between cost and loan is the equity you bring.
What you need. A draft budget, the land contract terms, a rough schedule, and a personal financial statement. Nothing binding — this stage is a conversation with arithmetic.
How long it takes. One to two weeks, often faster. This is the cheapest place to find out a project does not pencil; discovering it here costs nothing but a phone call. If the numbers work, you negotiate the land contract already knowing what you can fund.
One back-of-envelope discipline belongs here: estimate the finished property's net operating income, divide by 1.25, and check that the result roughly covers the debt service you plan to carry. If it does not, the take-out will not close — better to learn that before the land is under contract.
Step 2 — Assemble the Package
What happens now. Underwriting starts with documents: plans and specifications, permit status, the general contractor's contract, a line-item budget, a draw schedule, and a pro forma showing the finished property's projected income.
What you need. Beyond the construction documents — entity paperwork, ownership information, financial statements, and a track record of comparable projects. A borrower who has built before takes a shorter path through every subsequent step.
How long it takes. Two to four weeks to pull together, longer if permits are still pending. The permit calendar is often the single biggest variable in the whole process, and it belongs to the municipality, not to your lender.
Step 3 — Underwriting and Third-Party Reports
What happens now. The lender orders the independent reports that verify the file: an as-completed appraisal, a Phase I environmental assessment, a geotechnical report, and — depending on property type — a property condition assessment or market study. Title is examined, and the survey is commonly updated.
What you need. Site access, a point of contact for the appraiser, and patience. The borrower typically pays for these reports; they are part of the transaction's cost structure no matter which lender you use.
How long it takes. Three to six weeks, running mostly in parallel. An environmental finding or an appraisal that misses the budget adds time and can force a restructure — which is exactly why this stage runs before closing, not after. Order these reports as early as the lender allows; each one runs on its own vendor calendar, and a slow Phase I is one of the most common ways a closing date slips.
Step 4 — Term Sheet, Commitment, and Closing
What happens now. Underwriting produces a term sheet: loan amount, rate structure, term, extension conditions, draw procedures, fees, and the guarantees required. After you accept, the commitment letter follows, then loan documents, a disbursement agreement governing draws, and closing conditions including builder's risk insurance and an updated title policy.
What you need. Entity documents, insurance, guaranties, and — where applicable — consents from other parties on the title. Have counsel ready; commercial loan documents are not a weekend read.
How long it takes. Two to four weeks from term sheet to funding. The clock speeds up when the package from Step 2 was complete and slows when documents go missing.
Step 5 — Construction and Draws
What happens now. Construction begins, and the loan switches from a promise into a machine that runs on monthly draw cycles. Your contractor submits a requisition for work completed; the lender or its inspector verifies progress; title is updated and lien waivers collected; funds are released. Retainage — commonly 5% to 10% — is held back for later stages, which keeps the contractor's feet to the fire and protects the lender.
What you need. A disciplined contractor who treats draw paperwork as part of the job, and a contingency you do not touch for anything short of a real problem. Change orders need lender approval before work proceeds, not after.
How long it takes. Construction itself commonly runs 6 to 18 months depending on the project. The draw cycle is where newcomers trip: sloppy paperwork turns a 30-day funding into 45, and the interest reserve burns either way.
Step 6 — Completion and Close-Out
What happens now. Substantial completion triggers the close-out: certificate of occupancy, final inspections, final lien waivers from the contractor and major subcontractors, and release of the retainage. The final draws are processed.
What you need. The CO — permanent lenders will not close without it — plus sign-offs from the jurisdiction and a punch list that is actually manageable.
How long it takes. Two to six weeks around substantial completion. Small delays here push the take-out, and the take-out dates are the ones that matter to your wallet.
Step 7 — The Take-Out
What happens now. The construction loan is repaid by permanent financing: a bank loan, an SBA loan for owner-occupied property, or a DSCR loan for investors. This step was underwritten on day one, and executing it well means starting early.
What you need. A take-out lender engaged three to six months before completion. Permanent underwriting will examine the finished property's income, the CO, final leases, and — for investor property — a debt service coverage ratio that commonly needs to clear 1.20 to 1.25x.
How long it takes. Four to eight weeks, run in parallel with construction rather than after it. If the property will not stabilize immediately — a new building searching for tenants — a short bridge can carry it through lease-up. That decision made late is expensive; made early, it is routine. Our team at Tesni, LLC plans the take-out as part of the construction schedule, because a construction loan that cannot be taken out becomes a bridge by accident.
The Timeline at a Glance
| Stage | Typical duration | Clock starts when |
|---|---|---|
| Sizing and feasibility | 1–2 weeks | First lender conversation |
| Package assembly | 2–4 weeks | Site is controlled, plans are drafted |
| Underwriting and third-party reports | 3–6 weeks | Complete package received |
| Commitment and closing | 2–4 weeks | Term sheet accepted |
| Construction and draws | 6–18 months | First draw |
| Close-out (CO, retainage) | 2–6 weeks | Substantial completion |
| Take-out refinance | 4–8 weeks | 3–6 months before completion, run in parallel |
From first conversation to first draw, plan on two to four months for a clean project — and treat anything under two months as either a very simple deal or a warning sign.
Where the Calendar Slips
Permits that sit in review. An environmental report that flags a former use of the site. An appraisal that lands below budget, widening the equity gap. A contractor's price hold that expires mid-underwriting. Change orders started before approval. Draw requests submitted without lien waivers, adding a week to every cycle. None of this is exotic — any experienced builder has seen all of it — and none of it is fully avoidable. You protect the calendar with a real contingency, a take-out lender engaged early, and a draw process that is boring by design.
Pricing and Fees, in Market Terms
Construction loans are commonly priced as a spread over a benchmark index and float while you build; fixed-rate construction debt exists but is less common on smaller projects. Origination typically runs 1 to 2 points, and expect inspection fees, sometimes draw fees, and the third-party reports from Step 3. Compare offers on all-in cost rather than the headline spread — a loan with a leaner margin but heavy draw fees can cost more than the reverse. And ask how the floating rate is actually calculated before closing, because you will live with that formula for the life of the build.
Before You Apply — Five Items to Have Ready
- Equity source documented. Lenders want to see where the 20% to 35% down payment actually comes from — and how it lands in the account.
- A contractor's agreement with a fixed price or guaranteed maximum price.
- A budget with a 5% to 10% contingency line you intend to fund, not raid.
- A named take-out plan — bank, SBA, or DSCR — engaged before the first draw.
- Personal financial statements and guaranties, signed and current.
Construction lending rewards the borrower who plans backward from the take-out — and a first conversation costs nothing. Share your budget and schedule before you close on the land, and Tesni, LLC will show you where the real timeline lands and what to fix while there is still room to fix it.