How to Finance Commercial Construction in Charlotte: Loans, SBA Programs, and TI Allowances

Financing as the Biggest Barrier to Commercial Projects

For business owners and real estate investors in Charlotte, the biggest obstacle to moving forward on a commercial construction project is rarely finding the right contractor or selecting finishes. It is securing financing. Commercial construction loans are structurally different from standard business loans, involve more parties, carry higher due-diligence requirements, and move on timelines that demand early planning. Understanding your options before you engage an architect or begin design can make the difference between a project that closes and one that stalls.

Charlotte's commercial real estate market has continued to attract significant investment, from South End mixed-use developments to industrial parks along the I-85 corridor and medical office expansion near the major hospital campuses. Lenders are active, but they are selective. This guide explains the primary financing vehicles available - SBA 504, SBA 7(a), conventional construction loans, and tenant improvement allowances - along with practical guidance on how general contractor payment works and what you can do to put your loan application in the strongest possible position.

SBA 504 Loans for Owner-Occupied Real Estate

The SBA 504 loan program is one of the most powerful tools available to small business owners who want to purchase or construct a commercial building they will occupy. It is specifically designed for fixed asset acquisition - real property and long-life equipment - and offers terms that are difficult to match with conventional financing.

Key Features of the SBA 504 Program

Feature	Details
Maximum loan amount	Up to $5.5 million (higher in some cases for manufacturers and energy projects)
Borrower down payment	10% (new businesses or special-purpose properties may require 15-20%)
Interest rate	Fixed rate on the CDC debenture portion, typically below market rates
Loan term	10, 20, or 25 years
Owner-occupancy requirement	Business must occupy at least 51% of the property for existing buildings, 60% for new construction

The CDC Structure

An SBA 504 loan has a three-party structure that is important to understand. A conventional lender - a bank or credit union in the Charlotte market - provides a first mortgage covering approximately 50% of the project cost. A Certified Development Company (CDC), a nonprofit intermediary licensed by the SBA, provides a second mortgage funded by an SBA-guaranteed debenture covering roughly 40% of the project. The borrower contributes the remaining 10%. The fixed rate on the CDC debenture is set at the time of funding and remains fixed for the entire term, providing long-term payment certainty.

The Charlotte SBA district office covers North Carolina and works with several CDCs that are active in the greater Charlotte area. Your SBA-approved lender can connect you with a CDC partner, or you can contact the Charlotte SBA district office directly to identify certified lenders and CDCs operating in your market.

When SBA 504 Is the Right Choice

SBA 504 is well-suited for projects where a business owner is purchasing land and constructing a building, or substantially renovating an existing commercial building, and plans to occupy the majority of the space. It is less appropriate for tenant upfits in leased space, working capital needs, or projects involving investment property where the owner will not occupy the building.

SBA 7(a) Loans: Flexibility for Construction and Working Capital

The SBA 7(a) program is the SBA's primary and most flexible loan product. Unlike the 504 program, 7(a) loans are not limited to fixed assets and can be used for a broader range of business purposes - including construction, leasehold improvements, equipment, working capital, inventory, and business acquisition. This flexibility makes 7(a) valuable for projects that span categories or involve leased rather than owned space.

Key Features of the SBA 7(a) Program

• Maximum loan amount: $5 million
• Interest rate: Variable (tied to prime rate) or fixed, depending on the lender
• Terms: Up to 10 years for working capital, up to 25 years for real estate
• Down payment: Typically 10-20%, negotiated with the lender
• Use of proceeds: Construction, tenant build-outs, equipment, working capital, refinancing

For commercial construction specifically, 7(a) loans can finance ground-up construction of an owner-occupied building, major renovations, and tenant upfit projects in leased space. If you are building out a new restaurant, medical office, or retail location in a Charlotte commercial lease, a 7(a) loan is often the path of least resistance for covering construction costs that a landlord's TI allowance does not fully offset.

SBA 7(a) loans are originated by SBA-approved banks and credit unions. Major national banks active in Charlotte as well as regional lenders such as Truist, Bank of America, and several community banks participate in the 7(a) program. Approval timelines for 7(a) loans can range from 30 days for smaller loans through the SBA Express program to 60-90 days for standard applications.

Conventional Construction Loans

Conventional construction loans - those without an SBA guarantee - are common for larger commercial projects, investment properties, and borrowers with strong credit profiles and substantial equity. Understanding the mechanics of conventional construction lending is essential whether you ultimately use a conventional loan, an SBA program, or a hybrid approach.

How Construction Loans Work

A conventional commercial construction loan is a short-term, interest-only facility that funds the construction period - typically 12 to 24 months. Rather than disbursing the full loan amount at closing, the lender releases funds in draws as construction milestones are completed. During the construction period, the borrower pays interest only on the outstanding balance drawn to date, not on the full committed loan amount. This reduces carrying costs during construction.

At completion, the construction loan typically converts to a permanent loan - sometimes called a "mini-perm" or "take-out loan" - with amortizing payments over a longer term (10, 15, or 20 years). Some lenders offer true construction-to-permanent financing in a single closing, which saves on closing costs and streamlines the process. Others require a separate refinance at completion, which introduces additional underwriting and closing cost risk.

Typical Terms in the Charlotte Market

• Loan-to-cost (LTC): Most conventional lenders will finance 65-80% of total project cost, requiring equity or down payment of 20-35%
• Loan-to-value (LTV): Permanent loan typically limited to 70-75% of appraised value at completion
• Interest rate: Variable during construction (prime + spread), converting to fixed or variable at permanent phase
• Draw inspections: Lender orders periodic third-party inspections before releasing each draw
• Contingency reserve: Lenders often require 5-10% contingency built into the loan budget

Charlotte-area banks that are active in commercial construction lending include Truist, First Horizon, NewPoint Real Estate Capital, and several community banks. For smaller projects under $2 million, community banks and credit unions often provide more flexibility and faster turnaround than the large nationals.

Tenant Improvement Financing and TI Allowances

For businesses that lease rather than own their space, tenant improvement (TI) financing works differently from real estate loans. The two primary sources of TI funding are landlord-provided TI allowances and tenant-funded construction.

Landlord TI Allowances

In a competitive leasing market, landlords routinely offer TI allowances as a lease incentive to attract and retain quality tenants. A TI allowance is an upfront cash contribution from the landlord - paid to the tenant, or directly to the contractor - to fund the build-out of the leased space. Allowances are negotiated as part of the lease and are typically expressed as a dollar amount per square foot.

In the Charlotte market, TI allowances for Class A office space can range from $50 to $120 per square foot depending on lease term, tenant credit, and building class. Retail TI allowances vary widely - anchor tenants with strong credit may negotiate allowances of $80-$150 per square foot, while smaller inline tenants may receive $30-$60 per square foot or nothing at all in a tight market. Restaurant build-outs, which are more expensive per square foot, often require tenants to contribute significantly beyond the allowance.

For a detailed breakdown of how TI allowances are structured and negotiated, see our guide: Understanding Tenant Improvement Allowances in Charlotte.

Tenant-Funded Build-Outs

When the landlord's TI allowance does not cover the full cost of construction, tenants must fund the gap. Options for tenant-funded construction include:

• SBA 7(a) loans to cover leasehold improvements (as described above)
• Business lines of credit for smaller projects where the business has established banking relationships
• Equipment financing for fixed equipment that is part of the build-out (commercial kitchen equipment, HVAC systems, specialty millwork)
• Lease amortization of TI costs - in some deals, landlords fund the tenant's overage and amortize the excess into the rent, effectively providing a loan that the tenant repays through slightly higher monthly rent over the lease term

Lease Amortization of TI Costs

Lease amortization is a creative financing structure worth understanding. If a tenant needs $100,000 in build-out costs beyond the landlord's standard TI allowance, the landlord may agree to fund the overage and amortize the $100,000 into the lease at an implicit interest rate, spread across the lease term. From the tenant's perspective, this avoids the need to secure a separate loan. From the landlord's perspective, it increases the effective yield on the lease. The key trade-off is that if the tenant vacates early, they typically owe the unamortized balance as a lease termination fee.

Owner-Financed Construction: Cash, Equity, and Credit Lines

Not every commercial construction project requires outside financing. For well-capitalized business owners and investors, owner-funded construction offers simplicity, speed, and cost savings on interest and loan fees.

Paying Cash

Cash-funded construction eliminates lender approval timelines, draw schedule constraints, and interest carry costs. It also gives the owner maximum flexibility to make design changes mid-project without triggering loan modification requirements. The trade-off is opportunity cost - capital tied up in construction is not deployed in the business or other investments.

Using Equity in Existing Real Estate

Business owners and investors who hold equity in existing commercial real estate can tap that equity through a commercial equity line of credit or a cash-out refinance to fund construction of a new project. This approach leverages existing assets without liquidating them, and interest on a commercial equity line used for business purposes is generally deductible. Lenders typically allow up to 75-80% combined loan-to-value on commercial properties.

Business Lines of Credit

For smaller build-outs and phased improvements, a business line of credit provides a flexible draw-and-repay mechanism. Lines are typically limited to 12-month terms with annual renewal, which makes them better suited for short projects or bridge financing rather than 18-24 month ground-up construction. Interest rates on business lines are variable and generally higher than term loan rates.

How GC Payment Works During Construction

Understanding how your general contractor is paid during construction is directly relevant to how you structure your financing and cash flow. Commercial construction uses a structured progress-billing payment process designed for the scale and complexity of commercial work.

Progress Billing and AIA Format

Commercial GCs submit progress payment applications on a monthly basis using the AIA G702 Application and Certificate for Payment form (or an equivalent format). The G702 lists the scheduled value of each line item in the contract, the percentage complete to date, the dollar value earned to date, and the amount due for the current period after accounting for retainage and prior payments. The owner or their representative reviews and approves the application, then the lender (if applicable) releases the corresponding draw.

The AIA billing format provides transparency and a clear audit trail. Lenders and owners can track exactly what work has been completed and what remains. For financed projects, a third-party inspector or owner's representative typically verifies the claimed percentage completion before the lender releases each draw.

Retainage

Retainage is a standard commercial construction practice where the owner withholds a percentage of each payment - typically 10% - as security against incomplete or defective work. Retainage accumulates throughout the project and is released at substantial completion, once the punch list is resolved and all required closeout documents (lien waivers, O&M manuals, warranties, as-builts) are delivered.

From a cash flow perspective, retainage means that your GC will not receive the final 10% of contract value until project completion. This is built into their pricing, but it is worth understanding because it affects the timing of your final payment obligation and your lender's final draw disbursement.

Lien Waivers

Before releasing each draw, owners and lenders typically require conditional lien waivers from the GC and major subcontractors for the amount being paid. At final payment, unconditional lien waivers are required from all parties who furnished labor or materials. Lien waivers protect the owner from mechanic's lien claims against the property. In North Carolina, failure to obtain proper lien waivers can result in a subcontractor placing a lien on your property even after you have paid the GC in full.

Tips for Financing Success

Commercial construction financing is underwritten differently from standard business loans. Lenders evaluate the project, the borrower, and the business simultaneously. The following practices consistently improve approval odds and help borrowers secure better terms.

Get Pre-Construction Estimates Before Applying

Lenders want to see a detailed cost estimate from a qualified general contractor before approving a construction loan. A letter of intent or conceptual budget is not sufficient - most lenders require a detailed pre-construction estimate broken down by trade and scope. Having a complete estimate in hand before you apply allows the lender to properly size the loan, set the draw schedule, and build in appropriate contingency. Projects that go back to the lender for loan increases mid-construction create complications and delays.

Have Complete Plans at Application

For SBA loans and conventional construction loans alike, complete construction documents - or at minimum, design development drawings with a comprehensive scope of work - are required for underwriting. Projects submitted with schematic or preliminary drawings are often suspended until plans are complete, adding weeks or months to approval timelines. Invest in the design process before you begin the financing application.

Build Contingency Into the Loan Amount

Commercial construction budgets routinely encounter unforeseen conditions - subsurface issues, material price changes, utility conflicts, permit-driven design revisions. Experienced lenders typically require a 5-10% contingency reserve built into the loan budget. If your lender does not require contingency, build it in anyway. Running out of construction funds before completion is one of the most disruptive and expensive situations a project can face.

Understand the Draw Schedule Before You Close

Before signing a construction loan, review the draw schedule in detail with your GC. Confirm that the draw milestones align with the actual sequence of construction and that each draw is large enough to cover the costs incurred between inspections. Misaligned draw schedules - where the GC completes work but cannot draw funds until the next milestone - can create cash flow gaps that slow or stop the project.

Align Your Lease or Purchase Timeline with Financing

If you are leasing space, confirm that your construction loan or TI financing will close before your lease commencement and rent abatement period ends. Many commercial leases offer a free rent period during construction - if financing delays push construction past that window, you may begin paying rent on unfinished space. Plan financing milestones into your project schedule from the beginning.

Work with Lenders Who Know Commercial Construction

Not all commercial lenders have equal experience with construction loans. Lenders who routinely do construction financing understand the draw process, the role of AIA billing, lien waiver requirements, and the inspection process. A lender learning these mechanics on your project adds risk and delay. Ask prospective lenders how many commercial construction loans they close per year in the Charlotte market.

We Build's Role in Your Financing Process

Accurate pre-construction estimates are one of the most critical documents in a commercial construction loan application. As a veteran and family-owned commercial general contractor based in Charlotte and serving the greater Carolinas market, We Build provides detailed pre-construction cost estimates that lenders can rely on. Our estimates are organized by CSI division, include unit costs and quantities, and reflect current Charlotte subcontractor pricing - giving your lender the documentation they need to properly underwrite your project.

As a U.S. Green Building Council (USGBC) member, we also bring expertise in sustainable building strategies that can reduce long-term operating costs, a factor that strengthens your project's financial profile when presented to lenders evaluating debt service coverage.

Whether you are planning ground-up commercial construction, a tenant upfit, a medical office renovation, or a restaurant build-out in the Charlotte area, we can help you develop the pre-construction documentation your financing requires. Call us at (980) 471-1745 or visit our contact page to start the conversation.