A construction loan is a loan used in the acquisition and development of a commercial site and/or structure.Typically, the cost of the construction will be measured against the completion appraisal value when construction is finished.This is sometimes referred to as Future Value. The amount funded will also depend on the Loan to Value.Loan to Values usually range from 75 percent to 90 percent depending on various factors including the type of commercial structure. Use of mezzanine loans or bridge loans can be very creative in maximizing loan to value financing. Mezzanine loans can be used for refinance and purchase transactions.

In other types of commercial lending, some lender's look to the Loan To Cost Ratio, that is, the percentage of the total cost the lender is being asked to cover.

A frequently used test is the Debt Service Coverage Ratio.The ratio usually should be larger than 1.25.In essence, the net operating income must be 25 percent larger than the proposed payments.

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