The quick read: You finance a new medical office building with a commercial construction loan sized on loan-to-cost and tested against the appraised value, with your equity in before the first draw, and you repay it with a permanent loan once the building is complete and occupied. A physician or dental group building for its own practice can also use SBA 504. A developer building for a health-system or multi-practice tenant needs signed leases and tenant credit a lender can underwrite.
As of: October 6, 2026 (CFR 2025 editions, the OCC Comptroller's Handbook and SBA program pages read this date)
Loan type: commercial construction loan, drawn against inspected progress, repaid by a permanent takeout
Bank supervisory LTV, commercial construction: 80% (12 CFR Part 34, Subpart D, Appendix A)
HVCRE exemption contribution: at least 15% of appraised as-completed value (12 CFR 324.2)
SBA 504 new-construction occupancy: the borrower occupies at least 60% and may lease up to 20% (13 CFR 120.131)
SBA 504 borrower contribution: at least 10%; 15% for a business operating two years or less or a limited or single purpose building; 20% if both (13 CFR 120.910)
Draw holdback, commercial projects: 10 to 20 percent of each payment (OCC Comptroller's Handbook)
This guide covers new construction only. For buying or refinancing an existing building, see the medical office building financing guide; for the pre-leased development pattern, see financing a pre-leased commercial building.
Is a medical office construction loan the same as a physician construction loan?
No, a medical office construction loan is commercial real estate financing for a building where care is delivered, while the physician construction loans that surface in the same searches are usually home-construction programs for a doctor's house. The two are underwritten on different rules, against different collateral, by different lending teams.
The OCC's Comptroller's Handbook on commercial real estate lending (Version 2.0, March 2022) defines commercial construction loans as loans that finance the construction or renovation of non-one- to four-family properties for owner occupancy, lease, or sale, and it names office buildings among them. Bank supervisory limits differ too: the handbook's table sets 80% for commercial, multifamily and other nonresidential construction and 85% for one- to four-family residential construction.
If a program finances a residence, it is the wrong product for a clinic. Everything below is the commercial path.
Are you building for your own practice or developing for tenants?
The financing splits on who will occupy the building, because a physician or dental group building for its own practice is underwritten on the practice's cash flow and can use SBA 504, while a developer building for a health-system or multi-practice tenant is underwritten on signed leases, tenant credit and the permanent takeout.
The appraisal basis follows the same split. The OCC handbook's appendix on supervisory loan-to-value limits says that for an owner-occupied building or a property to be constructed that is preleased, the as-completed value should generally be used, and that an as-stabilized value would be appropriate for a property to be constructed that is not preleased to stabilized levels.
Owner-occupant: repayment comes from the practice; the lender reads its tax returns, financial statements and the owners' guaranties
Developer: repayment comes from rent; the lender reads the leases, each tenant's credit and how much space is still speculative
Which lender types finance new medical office construction, and how do their terms compare?
Five lender types finance new medical office construction: local and regional banks, credit unions, SBA 504 for an owner-occupying practice, life-company forward commitments that fix the permanent loan, and private debt funds. Only the bank and SBA rows carry dated public leverage rules; every other term is quoted deal by deal.
Table: New medical office construction by lender type (framework, not a ranking)
| Lender type | Leverage (dated public figure where one exists) | Pre-lease requirement | Recourse | Takeout |
|---|---|---|---|---|
| Local or regional bank | 80% supervisory LTV for commercial construction, which a bank may exceed for a limited volume of exception loans (12 CFR Part 34, Subpart D, App. A, 2025 edition); HVCRE treatment unless, among other conditions, the borrower contributes at least 15% of as-completed value before the first advance (12 CFR 324.2, 2025 edition) | Set by bank policy; the OCC lists pre-leasing requirements for income-producing property among the elements a policy should establish | Quoted per deal; ask whether a completion guaranty is separate from a payment guaranty | Bank term loan, a forward commitment, or a refinance at stabilization |
| Credit union | No dated public benchmark found; set by the credit union's commercial lending policy | Credit union policy | Quoted per relationship | Often the credit union's own term loan; confirm before closing |
| SBA 504, owner-occupying practice | Typically a third-party lender up to 50% of project cost, CDC up to 40%, borrower at least 10% (SBA CDC/504 page); 15% or 20% under 13 CFR 120.910 | No leasing test; an occupancy test instead: at least 60% occupied, no more than 20% leased (13 CFR 120.131) | Set by the bank and the CDC | An interim lender carries construction; ask the CDC when the debenture funds |
| Life company forward commitment | Not a construction lender; commits to refinance the construction loan on completion and, almost always, lease-up (OCC handbook) | Usually performance criteria such as lease-up to break even or better at minimum rental rates | Term loans from life insurers are commonly nonrecourse (OCC handbook) | It is the takeout, usually 10 years or more at a fixed rate |
| Private debt fund | No dated public benchmark found; quoted per deal | Quoted per deal | Ask about carve-out and completion guaranties | Refinance or sale inside an initial term with extension tests |
No dated public source we found publishes medical office construction rates, spreads or fees by lender type, so this page prints none.
How do lenders size a new medical office construction loan?
Lenders size a medical office construction loan on loan-to-cost, the loan as a share of the full development budget, and then test it against appraised value, because the OCC says prudent policies set loan limits as a maximum percentage of cost as well as market value so the borrower contributes sufficient equity.
Two federal rules shape a bank's answer. The interagency guidelines in 12 CFR Part 34, Subpart D, Appendix A (2025 edition) set an 80% supervisory loan-to-value limit for commercial, multifamily and other nonresidential construction. It is a supervisory limit, not a typical term, and a bank may exceed it for a limited volume of exception loans: the aggregate of loans above the limits should not exceed 100 percent of total capital.
The second rule is capital. The OCC handbook says HVCRE loans carry a risk-weight of 150 percent of capital under the standardized approach. Under the FDIC's capital rule, 12 CFR 324.2, a construction loan avoids that label when its loan-to-value is within the supervisory maximum and the borrower has contributed capital of at least 15 percent of the property's appraised as-completed value, in cash, unencumbered readily marketable assets, paid development expenses, or contributed real property, before the bank advances funds, and that capital is contractually required to stay in the project until the loan is reclassified.
Timing matters as much as amount. The OCC handbook says a bank's policy should state that equity be contributed before disbursements of the construction loan commence, and that deferred developer's profit and unearned developer fees are generally not considered equity.
Hypothetical example: a $10,000,000 budget for a two-story medical office building appraised at $12,000,000 as completed. Contributed capital of 15 percent of as-completed value is $1,800,000, which leaves room for a loan of up to $8,200,000, or 82 percent of cost and about 68 percent of value, if the bank's own loan-to-cost policy allows it. Land you already own counts toward that contribution at its appraised value.
How much pre-leasing does a medical office developer need?
No federal rule sets a pre-leasing percentage for a medical office construction loan; the OCC tells banks to set their own minimum levels of preleasing as a condition of commitment or funding, so the threshold is lender policy, and it moves with tenant credit, lease length and how much of the building is speculative.
The handbook's wording: prudent loan policies seek to mitigate market risk by establishing minimum levels of preleasing or sales as a condition of commitment or funding, and banks typically analyze presales and preleasing to determine whether they represent bona fide commitments. A letter of intent from a practice is not a lease.
The takeout sets a second bar. The handbook says forward and standby commitments require completion of construction and, in most cases, are subject to performance criteria such as lease-up to break even or better with leases at minimum rental rates. A developer therefore has two leasing tests: the construction lender's funding condition and the permanent lender's performance condition.
What makes a medical lease underwritable is concrete: a signed lease, a term that runs past the construction loan, the tenant's financial statements, and a clear split of who pays for the build-out. The handbook notes that office lease terms are typically three, five or seven years, so ask the takeout lender how it treats leases that roll before its loan matures.
Why do medical build-out costs change the construction budget?
Medical build-out changes the construction budget because medical office buildings need additional plumbing and wiring for examination room fixtures and equipment, and the OCC handbook says that makes construction and tenant-improvement costs higher than for conventional office buildings, so contingency, tenant allowances and equity must be sized for it.
The handbook also notes that these buildings are often located near other medical service providers, such as hospitals, and may feature pharmacies and lab facilities, each with its own specification.
The same handbook sets out how banks read the rest of the budget:
Contingency: usually ranges between 5 and 10 percent of the overall budget, depending on size and complexity
Developer fee: typically does not exceed 4 percent of project cost, and is distinct from developer profit
Interest reserve: should provide sufficient funds to pay interest through anticipated completion and lease-up, sale, or occupancy
Leasing commissions: for office properties, typical underwriting assumptions of 4 percent of total lease payments for new leases and 2 percent for renewals
Draws follow progress. On a commercial progress payment plan, the handbook says the bank normally retains, or holds back, 10 to 20 percent of each payment, and releases it at the final draw after lien waivers, a final inspection, and a certificate of occupancy. Budget cash for that lag, because the general contractor and medical-equipment vendors will not wait for it.
Can a physician group use SBA 504 to build its own medical office?
A physician or dental group can use SBA 504 to build its own medical office, because SBA lists construction among eligible 504 uses, but the practice must permanently occupy at least 60 percent of the new building and may lease no more than 20 percent, so a developer's multi-tenant building does not qualify.
Under 13 CFR 120.131, the borrower in new construction must also plan to occupy some of the remaining space within three years and all of it within ten years. SBA's 504 page bars speculation or investment in rental real estate, which is the line between a practice building and an investment MOB.
A typical 504 capital stack has three layers: a private lender with a senior lien for up to 50% of project cost, a CDC loan backed by a 100% SBA-guaranteed debenture for up to 40%, and at least 10% from the borrower, per SBA's CDC/504 page. Under 13 CFR 120.910 the contribution rises to 15 percent for a business operating two years or less or a limited or single purpose building, and to 20 percent if both apply. Whether a purpose-built clinic counts as limited or single purpose is an underwriting call; ask the CDC early, before you sign a construction contract.
What guaranties and takeout will the construction lender require?
Expect the construction lender to ask for guaranties, often including a completion guaranty, and for a takeout it can analyze, because the OCC notes some guarantees are limited to construction completion only and says underwriting ordinarily includes analysis of the risk should the take-out commitment not be funded.
The handbook tells examiners to consider whether a guarantor has both the willingness and ability to support the credit, and says a guarantor's unpledged assets should not be considered a substitute for project equity.
On the takeout, a forward commitment, frequently from a life insurance company, lets the borrower lock a fixed rate in advance; a standby commitment is back-up financing whose fees and rate may be set to discourage use. The handbook adds that term loans from life insurers, pension funds and CMBS lenders usually run 10 years or more at fixed rates and are commonly nonrecourse. A bank may instead write construction financing that converts to bridge financing for stabilization, with extensions sized to construction time plus the projected absorption period, so plan the loan term around lease-up, not the certificate of occupancy.
Building for your practice or developing an MOB? What a construction lender needs
A construction lender needs the site and entitlements, plans and a line-item budget carrying medical build-out, contingency and interest reserve, your general contractor, proof of equity, and either the practice's financial statements or the signed leases and tenant financials, plus a takeout plan, before it quotes a new medical office building.
Add personal financial statements for each guarantor and, for a practice, the occupancy plan by square foot. Compare development and SBA structures on the construction loans and medical office loans pages.
YieldStack is a commercial mortgage brokerage, not a lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed. Submit your medical office construction deal with the package above, and the deal team will route it to the bank, credit union, SBA 504, life-company and debt fund lender types whose current programs fit the project.
The bottom line
A new medical office building is financed on loan-to-cost, checked against appraised value, with your equity in before the first draw. The bank supervisory LTV for commercial construction is 80%, which a bank may exceed for a limited volume of loans, and at least 15% contributed capital, in before the first advance and kept in the project, with loan-to-value within that limit, keeps the loan out of HVCRE treatment. A practice building for itself can use SBA 504 if it occupies at least 60 percent; a developer needs bona fide pre-leasing, a budget that prices medical build-out, and a takeout the construction lender believes.