A&D Loan Explained (2025) — What It Is, How It Works & How to Qualify
A complete, practical guide to Acquisition & Development (A&D) loans — who uses them, how underwriting works, SBA considerations, lender options, application checklist and real-world examples so you can decide whether A&D financing fits your project.
What is an A&D Loan?
In most markets, A&D stands for Acquisition & Development. Some lenders or regions may also use A&D to mean Acquisition & Disposition for investor flip-finance, but the most common usage in land and residential development is acquisition (buying the raw land) and development (getting the land ready for construction).
A typical A&D loan finances:
- Purchase of raw land
- Permits, zoning changes and entitlement work
- Site work such as grading, drainage, roads and utilities
- Short-term bridging until lots are sold or construction financing begins
Key Differences from Construction Loans
- • A&D loans focus on land and horizontal infrastructure; construction loans focus on vertical building costs
- • Timing and draw schedules differ — A&D draws fund site improvements and entitlements instead of framing and finishes
- • Exit strategies differ: A&D lender expects lot sales, subdivision financing, or conversion to a construction facility as the exit plan
Why Developers Use A&D Loans
A&D financing exists because most land purchases and early development require more capital than an individual or small firm can provide. Lenders that specialize in A&D understand how to underwrite entitlement and infrastructure risk, value raw land with pro forma lot sales, and structure short-term facilities with interest-only payments.
Typical Borrowers
- • Small-to-mid-size residential developers
- • Builders buying land to subdivide
- • Land investors rehabbing parcels for resale
- • Municipal or mixed-use developers needing bridge capital
Lender Types
- • Local banks and regional lenders
- • Specialty A&D lenders
- • Credit unions
- • Private lenders and bridge funds
SBA and A&D Loans
Short answer: not in the conventional way most people expect. SBA loans are typically intended for business working capital, equipment, or real estate acquisition for owner-occupied properties. Raw land acquisition and speculative development is generally outside typical SBA backing.
Alternative Pathways
- • If development includes owner-occupied commercial building, SBA 7(a) or 504 may help with construction financing
- • State and local economic development programs can pair with SBA loans to reduce risk
- • Community-focused SBA lenders might consider programs case-by-case for small residential developers
Underwriting Checklist
Lenders view A&D projects through three lenses: borrower, project, and market/exit. Prepare for deep diligence in each area:
Borrower / Sponsor
- • Experience and track record
- • Personal and business credit
- • Liquidity and available equity
- • Organizational structure
Project Specifics
- • Site plan and entitlements
- • Detailed budget breakdowns
- • Environmental reports
- • Contractor bids and scope
Market & Exit
- • Market absorption studies
- • Pre-sales or LOIs from builders
- • Clear exit strategy
- • Sensitivity analysis
Typical Loan Structure & Terms
Common Features
Real-World Examples
Example 1: Small Subdivision (10 lots)
Developer buys a 5-acre parcel for $700,000. Siteworks estimated at $500,000. Expected lot sales: 10 lots at $200,000 each. Lender offers an A&D facility for acquisition + siteworks at 70% LTC, interest-only for 18 months with a 2% origination fee.
Example 2: Infill Lot Assembly
Investor assembles three infill lots in a suburban market. Because each lot can support an immediate build, lender structures a short bridge loan to close purchases and fund minor infrastructure with a higher rate but fast decision.
Step-by-Step Roadmap
- Prepare your team — engage a surveyor, civil engineer, and land-use consultant early. Lenders want credible professional input.
- Assemble the packet — site plan, title report, purchase contract, budget, contractor bids, environmental/geo reports and market comps.
- Pre-meet with local lenders — disclose the project in a short executive summary and ask for prequalification parameters (LTC, rates, timing).
- Choose lenders and get term sheets — compare pricing, covenants and flexibility on draws.
- Negotiate and close — finalize loan docs, fund the acquisition and follow tight reporting timelines during development.
Decision Matrix
Use this simple checklist to decide if an A&D loan is right for you:
Key Questions
- • Do you have a realistic exit (pre-sales, builder commitments or lot sales)?
- • Can you fund at least 15–30% equity depending on the lender?
- • Do you (or your team) have prior development experience or a credible partner?
- • Is the local market absorbing lots or new builds at your projected prices?
- • Can you tolerate short-term interest-only payments while development completes?
Conclusion
Use an A&D loan when you have a clear, executable plan to acquire land and prepare it for sale or construction, and you can bring meaningful equity plus the professional team necessary to execute. For first-time developers, partner with an experienced sponsor or consider alternative structures until you can demonstrate a track record.
Key Takeaways
- • An A&D loan finances land acquisition and early development (infrastructure, entitlements)
- • Lenders focus on sponsor experience, project feasibility and clear exit strategy
- • SBA loans rarely cover raw land development — expect to use commercial or specialty lenders
- • Prepare a complete diligence packet to speed underwriting
- • Alternatives include seller financing, private bridge lenders, JV equity, or phased acquisition
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