New Construction Financing Guide

New construction financing is funding used to pay for a ground-up build — land prep, materials, labor, and soft costs — before the finished property or project generates income. For most US businesses it takes one of three forms: a bank construction loan that releases money in stages against completed work (a "draw schedule"), an SBA 504 or 7(a) loan for owner-occupied commercial builds, or short-term working capital that covers the gaps a construction loan won't — deposits to subs, permit fees, mobilization costs, and payroll while draws are pending. The right choice depends less on the project and more on your timeline and how predictable your revenue is. This guide walks through each option, how the draw process works, what lenders check, and where a revenue-based advance fits when a construction loan is too slow or too rigid.

The three ways businesses fund new construction

Almost every ground-up build in the US is financed through one of these structures, or a combination of them:

• Bank / commercial construction loan. A short-term (typically 12-24 month) loan that funds the build in stages. You don't get the full amount up front — the lender releases draws as work is inspected and completed, and you pay interest only on what's drawn. At completion it either converts to permanent financing (a "construction-to-permanent" loan) or you refinance into a term mortgage. Best rates, slowest to close, heaviest documentation.
• SBA 504 and SBA 7(a). For owner-occupied commercial buildings (you occupy 51%+), the SBA 504 program pairs a bank loan with a CDC debenture for long-term, fixed-rate financing on the completed asset; 7(a) can cover construction plus working capital under one loan. Excellent terms, long approval, strict eligibility and paperwork.
• Working capital / revenue-based funding. Not a substitute for a construction loan on the building itself, but the tool that keeps the job moving: covering sub deposits, materials ordered ahead of a draw, permit and impact fees, and payroll during the lag between submitting a draw request and the bank funding it. Approval is fast (often 24-48 hours) and based on your business's cash flow, not the appraised value of an unbuilt property.

Most operators who run into trouble aren't missing the construction loan — they're missing the bridge cash that a draw-based loan structurally can't provide. That gap is where this guide spends most of its time.

How a construction draw schedule actually works

Understanding draws is the single most important thing for cash-flow planning, because the draw structure is why ground-up builds create working-capital gaps even when a project is fully financed.

A draw schedule ties disbursements to construction milestones. A simplified commercial example might look like: foundation complete, framing/dry-in complete, mechanical rough-in, interior finish, and final/certificate of occupancy. When you hit a milestone, you submit a draw request with lien waivers and invoices. The lender sends an inspector, verifies the work, and then releases funds — often 1-3 weeks later.

The problem: subs and suppliers frequently want deposits or payment before the milestone that unlocks the draw. You order steel now; you get reimbursed at dry-in. You mobilize a crew this week; the draw funds three weeks out. Multiply that across a build and you're routinely floating tens of thousands of dollars of your own cash. A retainage holdback (commonly 5-10% held until completion) tightens the squeeze further. This is normal, predictable, and exactly what short-term working capital is designed to smooth.

What lenders check before they fund

Requirements vary sharply by financing type. Knowing which document set a lender will demand tells you how fast you can realistically close.

• Construction loans and SBA: project budget and pro forma, general contractor's license and track record, fixed-price or GMP construction contract, permits and zoning, appraised "as-completed" value, personal financial statements and guarantees, business and personal tax returns, and often a meaningful equity injection (10-30% of project cost). Underwriting is thorough and slow.
• Revenue-based / MCA marketplace funding: the underwriting flips. Approval is driven by your business bank deposits and revenue — consistent cash flow matters more than credit score. Typical baseline: several months in business, roughly $10,000+ in monthly revenue, and a personal FICO of 500+. Minimum funding amounts commonly start around $10,000. No appraisal of an unbuilt property, no draw inspections, no lien-waiver chain. That's why it clears in 24-48 hours instead of weeks.

Neither path is "guaranteed" — every lender underwrites, and revenue-based approval still depends on what your statements show. But the two paths answer different questions: a bank asks "is this project sound and are you good for it over years?"; a revenue-based funder asks "can this business comfortably service a short-term advance out of daily cash flow?"

Example: a ground-up build's financing stack

The figures below are illustrative for example only, to show how the pieces fit — not a quote, and not payback math.

Read across the table and the logic is clear: use the cheapest, slowest money for the biggest, most permanent asset (the building), and reserve fast, flexible cash for the timing gaps that would otherwise stall the job. Layering the two is standard practice, not a sign of trouble.

Decision framework: when revenue-based funding fits — and when to avoid it

Revenue-based or MCA-marketplace funding is a cash-flow tool, not a mortgage. Use this framework honestly.

It works best when:

• You have a construction loan approved or in place, but need to bridge the lag between draw requests and disbursement.
• A supplier or sub requires a deposit now to hold a price or a slot, and waiting kills the schedule.
• Your business has steady daily or weekly revenue (an active contractor, builder, or trades operation with regular deposits) that can comfortably absorb a short-term remittance.
• Speed is the deciding factor — the cost of a stalled crew or a lost materials price exceeds the cost of capital.
• Your credit is below bank thresholds (FICO 500-650) but your revenue is solid.

Avoid it — or use it only in small, deliberate amounts — when:

• You're trying to fund the entire building with it. It's not priced or structured for that; a construction or SBA loan is.
• Your revenue is seasonal or lumpy and a fixed daily/weekly remittance would strangle a slow month.
• You have time to wait for a bank and no milestone is at risk — then the cheaper capital wins.
• You're already carrying remittances that consume a large share of daily deposits; stacking without a plan is how good builders get into trouble.

The disciplined move is to size the advance to a specific gap with a defined end (a deposit, a materials order, one payroll cycle covered by a known upcoming draw), not to plug an open-ended hole.

Common mistakes that stall a build's financing

• Budgeting only the hard costs. Soft costs — permits, impact fees, architecture, engineering, insurance, and financing interest during construction — routinely run 20-30% of a project and are the ones that surprise operators mid-build.
• Ignoring the draw lag in the cash-flow plan. Treating the construction loan as if funds arrive on demand is the #1 cause of the mid-project scramble. Plan the float from day one.
• No contingency line. Change orders and price movement on materials are near-certain. A 5-10% contingency isn't padding; it's the difference between finishing and stopping.
• Waiting until the gap is a crisis to arrange working capital. Lining up a fast funding source before you need it means you draw on it deliberately instead of accepting whatever's available under pressure.
• Chasing a "guaranteed" approval. No legitimate funder guarantees approval sight-unseen. If someone does, that's the warning sign — real underwriting always looks at your numbers.

How to move fast without overpaying

The winning approach is a two-track one. Track one: pursue the lowest-cost permanent financing for the asset — a bank construction-to-permanent loan or SBA 504/7(a) — and start it early, because it's the slow one. Track two: pre-qualify for a revenue-based facility so you have fast capital on standby for the timing gaps a draw schedule guarantees you'll hit.

For the revenue-based track, a marketplace approach beats applying to one funder at a time: a single application to a marketplace surfaces multiple offers, so you compare terms instead of taking the first yes. Underwriting reads your bank deposits and revenue rather than leaning on credit, minimums commonly start around $10,000, FICO 500+ is workable, and funding typically lands in 24-48 hours. Match the amount to a defined gap, confirm the remittance fits comfortably inside your daily cash flow, and treat it as a bridge — not as the foundation of the deal.

For more on how short-term business capital is priced and structured, see our complete business funding guide, and if the draw gap is your specific problem, our working capital guide covers sizing an advance to a real cash-flow need.