A&D Loan Explained (2025)

Quick overview — what this guide solves

If you’re shopping for land financing or early-stage development funding, an A&D loan (Acquisition & Development) is frequently the right product — but it’s not one-size-fits-all. This guide walks through definitions, lenders, underwriting criteria, step-by-step preparation, and example scenarios so you can approach lenders with confidence and get the best terms possible.

We assume you want practical, lender-facing answers: how much to ask for, what documents matter, what risks lenders care about, and alternative options when A&D financing is hard to obtain.

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 to 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 and investors 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
• How to value raw land with pro forma lot sales or subdivision appraisals
• How to structure short-term facilities with interest-only payments and predictable exit expectations

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

Where to get A&D financing — lender types

Local banks and regional lenders

Local banks and regional lenders often know local zoning rules and market absorption rates. They can offer competitive pricing for repeat developers with strong local track records.

Specialty A&D lenders

Specialized lenders focus exclusively on land and development finance. They’re faster on underwriting but charge a risk premium. Their terms are tailored to development cashflows and phased draws.

Credit unions

Credit unions occasionally lend to developers in their footprint, particularly to long-standing members. They may be more flexible but have smaller balance sheets for very large developments.

Private lenders and bridge funds

Private capital or bridge lenders are often quicker and accept higher risk — at higher cost. They are useful when timing is critical or when bank financing is unavailable.

SBA and government alternatives

Traditional SBA loans rarely fund raw land development directly. However, certain SBA-backed programs (or community development financial institutions) may participate indirectly when there's a clear job-creation or small-business element. For many small developers, local/state programs and tax-increment financing (TIF) may be relevant alternatives.

Is there an SBA A&D loan?

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.

That said, there are pathways:

• If the development includes an owner-occupied commercial building (e.g., an owner-operator building a warehouse), an SBA 7(a) or 504 may help with construction financing for the owner-occupied portion.
• State and local economic development programs can pair with SBA loans to reduce risk.
• For small residential developers structured as small businesses with non-speculative plans, certain community-focused SBA lenders or CDCs might consider programs case-by-case.

Practical takeaway: do not rely on a standard SBA loan to finance raw land subdivision. Talk with an SBA lender early to understand edge-case possibilities and consider blended finance structures instead.

Underwriting checklist — what lenders will evaluate

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 (prior developments and profit/loss on past projects)
• Personal and business credit
• Liquidity and available equity
• Organizational structure (LLC, partnership, guarantees)

Project specifics

• Site plan, entitlements, permits and any outstanding conditions
• Detailed budget and cost breakdowns for acquisition and siteworks
• Environmental reports, geotechnical studies and floodplain status
• Contractor bids and clear scope for work being financed

Market & exit

• Market absorption studies and comparable lot or home-sale data
• Pre-sales or letters of intent from builders (if applicable)
• Clear exit strategy: lot sales, sale of finished lots, or conversion to construction loans
• Sensitivity analysis: what happens if sales slow or interest rates rise

Documentation — a practical packing list for lender meetings

Bring organized, lender-friendly documents. The absence of any of these can materially delay or kill a deal:

• Detailed project budget (acquisition, soft costs, hard costs, contingency)
• Site plan, subdivision map and entitlement timeline
• Market comps and sales absorption schedule
• Environmental & geotech reports
• Contractor agreements, bids and schedule of values
• Business financials: P&L, balance sheet, tax returns (2–3 years)
• Personal financial statements for guarantors
• Title report and purchase contract

Typical loan structure, terms & pricing

Structures vary, but here are common features:

• Term: 12–36 months (sometimes extendable)
• Payments: Interest-only during the development period is common
• LTV / LTC: Loan-to-cost (LTC) and loan-to-value (LTV) ratios are used; lenders typically limit LTC to 60–80% depending on risk
• Pricing: Interest rates typically reflect development risk — expect a premium versus stabilized property mortgages
• Fees: Origination fees, inspection fees, and legal costs are typical
• Covenants: Reserve requirements, reporting cadence, and draw holdbacks until milestones are complete

Real-world examples (illustrative)

Example 1 — Small subdivision (10 lots)

Developer buys a 5-acre parcel for $700,000. Siteworks (roads, utilities, grading) 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. Developer must provide 20% equity and a personal guarantee. Exit: sale of lots and paydown of the facility, or conversion to lot-secured term loan.

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. This is an ideal use for private A&D or bridge lenders when speed matters.

Alternatives when A&D financing is tough

• Seller financing: Negotiate partial seller carry to reduce lender exposure.
• Private equity / JV partner: Bring in an equity partner to reduce leverage needs.
• Phased acquisition: Buy in stages as entitlement milestones are hit.
• Convert to construction loan: If pre-sales are strong, move to construction financing with better long-term terms.
• Home equity or personal lines: For small projects, owners may use HELOCs or personal secured loans to bridge the gap.

How to negotiate better A&D terms

1. Show depth of due diligence — complete entitlements, surveys and environmental reports before approaching banks where possible.
2. Offer staged milestones — align draws with clear, inspectable milestones (e.g., curb installation, utilities live).
3. Bring equity, not promissory notes — lenders prefer real cash-in rather than vendor debt stacking.
4. Leverage local relationships — local banks that know the market can be less conservative on comps.
5. Provide pre-sales or strong LOIs from builders — demonstrated demand reduces market risk and improves terms.

Common covenants & how to manage them

Lenders impose covenants to limit downside. Typical examples include:

• Minimum liquidity or reserve balances
• Reporting requirements (monthly draws, budget variance reports)
• Limitations on additional indebtedness
• Completion and insurance requirements

Manage covenants proactively: keep accurate reports, anticipate covenant triggers, and maintain transparent communication with your lender.

Decision matrix — is an A&D loan right for you?

Use this simple checklist to decide:

• 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?

If the answer is yes to most of these, approach A&D lenders with a clear package. If not, consider alternatives like JV equity or phased acquisition.

Step-by-step roadmap to get an A&D loan

1. Prepare your team — engage a surveyor, civil engineer, and land-use consultant early. Lenders want credible professional input.
2. Assemble the packet — site plan, title report, purchase contract, budget, contractor bids, environmental/geo reports and market comps.
3. Pre-meet with local lenders — disclose the project in a short executive summary and ask for prequalification parameters (LTC, rates, timing).
4. Choose lenders and get term sheets — compare pricing, covenants and flexibility on draws.
5. Negotiate and close — finalize loan docs, fund the acquisition and follow tight reporting timelines during development.

Final verdict — when to use an A&D loan

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.