Expect to Finance Commercial Construction Differently in 2025

A crucial pillar of construction development is becoming increasingly shaky.
Key Takeaways:
- Lenders are becoming more cautious, requiring more detailed financial projections and risk assessments from borrowers.
- Rising commercial construction loan rates are making it more expensive to finance construction projects.
- Commercial developers are exploring multiple financing options, including traditional bank loans, private equity, and alternative lenders.
Commercial construction financing is a shifting landscape these days. The rapid change is making it harder for construction projects to secure much-needed money and has marked 2025 as the year where an increasing number of developers are starting to consider (and even combine) several sourcing of funding for their projects.
It’s a shift driven by numerous factors, like commercial construction loan rates. We’re putting all of them under the RPC spotlight so you can better understand the key forces at play, the various funding options, and how they might help you get your next project off the ground.
Increased Scrutiny and Risk Assessment
The deep level of due diligence, which was once the hallmark of private equity investors, is now becoming the norm for all financiers of commercial construction.
High interest rates and increasing construction costs are making bank regulators more watchful, making the banks themselves more cautious about providing money (if they’re not choosing to leave the lending game altogether).
While a more complex regulatory environment isn’t much fun for developers, it’s understandable when you dig a little deeper: Delinquency rates on construction loans hit a record high last year, reaching $4.86 billion.
Half of the top 20 construction loan banks reported a downturn in their non-residential construction loans, and that’s not entirely a result of them choosing not to lend the money after risk assessments.
When loans aren’t being repaid, the capital simply isn’t there to give. It also means that those construction developers lucky enough to qualify for more traditional forms of financing are paying more for the privilege in the form of higher commercial construction loan rates.
Developers will need to cast a wider financing net in 2025 if they want to increase their chances of finding commercial construction financing.
Diversified Financing Strategies for Commercial Development
There are quite a few options out there that could represent significant assistance should developers qualify.
Of course, there are always downsides to every deal, but here are some of the most popular funding avenues and a quick look at their pros and cons.
#1: Construction Loans
This traditional means of construction financing is still at the top of the list for most developers. Funds are incrementally provided as a project hits certain milestones which can help contractors stay on timeline and within budget.
Disadvantages are the typically higher interest rates involved and the conversion of construction loans into permanent ones post-construction.
The unpredictable nature of construction delays and overruns can also lead to construction loan extensions, with all the associated fees and rates that apply.
#2: C-PACE Financing
This flexible, alternative option is gathering pace with developers and can cover a large amount of the upfront costs of adding greener elements to new or existing construction.
There are several impressive benefits—and a few notable downsides—to borrowing funds this way.
For example, it offers strong security for investors since financing is repaid via the property tax bill, but C-PACE isn’t available everywhere and typically requires the approval of the mortgage lender on the property, should that apply.
#3: Private Equity Firms
This type of commercial construction financing can open a world of resources for developers.
Some private equity partners will do more than allow access to substantial capital resources; they may be a gateway to a wider network of investors or to related businesses like suppliers and subcontractors.
However, the presence of investors could mean a loss of control for developers. These investors will also perform rigorous (and time-consuming) due diligence to gauge if a developer is worthy of assistance, which may be time a project can’t afford.
#4: Debt Financing
A big positive of this method is that it avoids the loss of control element connected with private equity.
The expected interest payments are communicated in advance (assuming construction developers work with a transparent lender), allowing for more confident financial planning. Interest payments are also tax deductible.
Potential downsides here are that developers will need a strong credit rating and may put assets at risk if they provide collateral to the lender.
#5: Local Government Incentives for Affordable Housing
Construction developers working on this type of project could find they’re eligible for things like state apartment incentive loans, exemptions on development fees or property taxes, and density/intensity bonuses.
These opportunities will differ depending on where a construction developer is operating. For example, the City of Orlando runs programs for construction and rehabilitation projects that offer reduced or waived fees and reimbursed impact fees.
As tough as it can be to find reliable and trustworthy commercial construction financing in today’s lending climate, it’s still only half the battle. The contractor developers choose to work with can be the difference between money well-spent and yet another financial headache, so it must be an informed choice.
Put Your Hard-Won Financing in Experienced Hands With RPC
Healthy financial backing won’t mean much if you choose a construction partner who won’t handle your project responsibly, exposing it to avoidable cost overruns and delays.
This is where RPC General Contractors builds differently. As a full-service construction company, we can help our clients balance their budgets as successfully as we can assist them with every other aspect of construction.
You can be confident about your bottom line when you let RPC handle every financial aspect of your project. Just send us a message, call at (904) 241-4416, or stop by our Atlantic Beach office to learn more. We’d love to hear from you!