Overview
Financing for land and construction is often structured in stages because the risk profile changes over time. Land is typically financed based on collateral and sponsor strength, while construction is financed based on budget, schedule, and execution risk.
Common ways land and construction are financed
- Single facility that funds land purchase and then transitions into construction draws
- Land loan first followed by a separate construction loan after permits and plans are finalized
- Equity for land with construction debt funded later to reduce lender risk
What lenders look for on the land side
Lenders evaluate location fundamentals, access, utility availability, and whether the intended use is feasible under zoning. They also assess sponsor liquidity because land does not produce income.
What lenders require for the construction phase
Construction financing usually requires a detailed budget, contractor agreements, a realistic schedule, permits in process or approved, and a contingency reserve. Lenders also want clarity on interest carry and how overruns will be funded.
Equity and reserves matter
Land and construction financing approvals improve when the sponsor has meaningful equity and enough liquidity to handle timing gaps, change orders, and pre-opening costs.
How to improve the odds of approval
Start early with site due diligence, build a complete budget with soft costs, and document utility and permitting feasibility. A clear plan for stabilization and takeout financing also helps.
Bottom line
Getting financing for land and construction is easiest when the project is structured in phases, the budget is detailed, and the sponsor is well-capitalized through completion and early ramp-up.