What are commercial construction loan rates?
Commercial construction loan rates are the interest charged on development financing. Compare the benchmark, spread, floor, fees and projected draw schedule.
A commercial construction loan rate is the interest rate a lender charges to fund work on a commercial property. There is no single U.S. construction rate. A floating-rate quote might specify a benchmark plus a spread, subject to a floor. The spread is the lender’s markup; the floor is the lowest rate allowed under the stated terms. Project risk, leverage, guarantees and the planned exit can all affect the quote.
Turn a rate quote into interest dollars
Suppose a term sheet specifies a 4.00% benchmark plus 3.00 percentage points, with no binding floor. That is 7.00% per year. If the drawn balance stays at $2 million for a 30-day period on an actual/360 basis, interest is $2 million × 7% × 30/360, or about $11,667. This is simple interest for one draw period. If you need to compare rates that compound at different intervals, use the effective annual rate (EAR) formula. These are illustrative inputs, not a current offer. Once more funds are drawn, the interest bill changes even if the rate does not.
Compare two term sheets on the same assumptions
Use the same monthly draws and completion date. Check whether the benchmark is overnight SOFR, a term rate or another index; they are not interchangeable. The New York Fed publishes overnight SOFR, not a borrower’s final loan rate. Add origination, inspection, unused-line and extension fees where applicable. Then test a delayed completion date: the loan may need an extension before the property can refinance. A lender inspection can also affect when a draw is released.