Land Financing (and Its Challenges) in 2025

Financing land is one of the toughest challenges in commercial real estate. Unlike income-producing properties, land offers no cash flow and limited collateral value. For lenders, it's all risk and no revenue — unless the sponsor, business plan, and entitlement status tell a different story.

Read on to learn more about how to get a land loan for your clients. This guide is part of our longer series on financing any type of commercial real estate.

What Is Land in Commercial Real Estate?

At its core, land is undeveloped real estate. It may be agricultural, zoned for future use, or fully entitled for construction. But unlike stabilized assets, its value lies entirely in its future potential. Land has no tenants, no leases, and no in-place income.

The business model, therefore, is not about collecting rent — it's about appreciation and/or development. Whether the strategy is entitlement, flipping, or holding for future use, land is a speculation play by definition.

Land Subtypes: A Risk Continuum

Raw or Unentitled Land

Undeveloped, unimproved, and unzoned for any particular use. No approvals or entitlements. This is the riskiest category by far.

Financing Note: Very few lenders will touch this. Requires substantial equity and a very strong borrower with a credible track record.

Entitled Land

Land that has been approved for a specific use or development plan (e.g., "approved for 80,000 SF of industrial" or "zoned for multifamily").

Financing Note: Entitlement reduces risk significantly. Financing becomes possible with regional banks, private lenders, and some development-focused credit unions.

Finished Lots or "Paper Lots"

Land that has been subdivided and improved with roads, utilities, and other horizontal infrastructure in place. Often held by developers preparing for vertical construction.

Financing Note: Most financeable of the three categories. May be eligible for Acquisition & Development (A&D) loans, especially if a takeout construction loan is lined up.

Capital Sources for Land Financing

Land is typically financed by:

• Banks & Credit Unions: Limited appetite, but may offer short-term, full-recourse loans for entitled or finished land.
• Private Lenders & Debt Funds: More flexible, often willing to take on land risk at higher rates and lower leverage.
• Seller Financing: Common in land deals, especially for raw or underutilized parcels.

HUD, Fannie Mae, and Freddie Mac do not finance land.

What Lenders Are Scrutinizing

Challenges:

• Lack of Cash Flow: No income means the borrower must cover taxes, insurance, and carry costs out-of-pocket.
• Entitlement Risk: Zoning and permitting delays are common. Failure to secure approvals can destroy deal value.
• Market Volatility: Land's value can collapse in a downturn. Timing matters.

Opportunities (When Well Positioned):

• Sponsor Strength: Lenders bet on the borrower. Experience, liquidity, and a clear track record of successful projects matter most.
• Exit Strategy: Can the land be flipped, or will it roll into a construction loan? A clear path to repayment is critical.
• Strong Equity Contribution: Expect to bring 40-50% or more in cash to the table. Leverage is low, and full recourse is typical.

Broker Tips: Structuring a Financeable Land Deal

• Focus on entitled or finished land. Raw land is rarely viable unless it's a trophy location.
• Build a clear, credible pro forma that outlines the business plan.
• Bring in a strong co-sponsor or JV partner if the borrower lacks experience.
• Consider private lenders or seller financing for raw or early-stage projects.
• Always clarify the exit: construction loan, sale to a developer, or hold strategy.

Final Thoughts

Land may be the foundation of all real estate, but it's by far the most speculative corner of the market. Financing land takes more than a good location — it takes a strong sponsor, a clear vision, and a lender willing to bet on both.