COMMERCIAL REAL ESTATE LOANS: Types, Rates and Requirements

commercial real estate loans

Commercial real estate loans are typically used to purchase or renovate the commercial property. Lenders typically require that the property be owner-occupied, which means that your company must occupy at least 51 percent of the building. To obtain a commercial real estate loan, you must first determine the types of commercial loans you require based on the property and business and then narrow down your lender possibilities. You’ll also have to note the requirements for the commercial real estate loans lenders so as to know which lender to choose. Here’s is all you’ll need to know about commercial real estate loans.

Commercial Real Estate Loans: How Do They Work?

Commercial real estate loans function similarly to personal real estate mortgage loans. One major distinction is that the loans are secured by a lien on a commercial property rather than residential property. A lien is a legal claim on a piece of property that can be used as collateral if a loan is not paid back. In the case of a commercial loan, once the loan is paid off, the lender removes the lien.

The actual conditions of commercial real estate loans vary depending on the types of loans, lender, property finance, and other factors.

How to Qualify for Commercial Real Estate Loans

Obtaining commercial real estate loans are similar to obtaining a mortgage for a residence.

  1. Gather your documentation. When applying for a CRE loan, you must produce substantial documentation demonstrating your assets, debts, income, and credit history.
  2. Fill out the loan application. A CRE loan can be obtained via a bank, credit union, or internet lender that specializes in commercial loans.

It is critical to understand that the qualifying requirements for a commercial real estate loans are typically significantly tighter than those for personal mortgages. Furthermore, the characteristics that lenders assess can vary.

Requirements for Commercial Real Estate Loans

Qualifying for a commercial real estate loan is not the same as qualifying for a home loan. Lenders want to know that your firm can meet the loan payments because you’ll be using the property for business purposes and repaying the loan with business revenue.

Commercial real estate loans requirements are divided into three categories:

#1. Safety

Before authorizing a loan, your lender will want to ensure that the loan is adequately secured by the property you’re borrowing against. This means that you’ll typically require at least 25% to 30% equity in the property; if you’re purchasing, you’ll need a down payment of 25% or more to qualify.

Furthermore, your lender will want to ensure that you have appropriate property insurance to safeguard against property damage (their collateral). The lender will also conduct title work on the property and review the deed to ensure that there are no existing liens or other claims against the property. [For more information, see What Is a Lien?]

#2. Earnings

Lenders want to verify that you have enough income relative to your expenses when processing your application so that they may be confident that you will be able to make your loan payments each month. Your debt-service coverage ratio is one criterion lenders consider while making this assessment (DSCR). The minimal DSCR varies depending on the property being financed, however, most lenders prefer a DSCR of 1.25 or greater.

You’ll need to give two years of tax returns – normally company as well as personal because you’ll be borrowing the money for business purposes, but you’ll also need to sign a personal guarantee. You must also submit your company’s organizational documents and operational agreement, as well as personal documentation such as a W-9 and a copy of your birth certificate or passport.

#3. Guarantee

If you’re applying for a loan for commercial property, your lender will almost certainly want to verify your company credit score. However, in most situations, lenders will also require you to offer a personal guarantee, so your personal credit will be checked as well.

Minimum credit scores vary per lender, but for most conventional loans, they are normally between 660 and 680.

Lenders will want to know how long you have been in business in order to estimate your credit risk, in addition to assessing your credit. To be eligible for a commercial loan, you must typically have been in the company for at least one or two years. As a result, the lender will have confidence in your company’s revenue, which will be the principal source of payback for your loan.

Choosing a Lender for Commercial Real Estate Loans

There are many different loans and lenders to select from when looking for a commercial real estate loan, so it’s critical to locate a lender that not only offers the type of loan you want but also has rates you can afford and qualification requirements you can fulfill.

Consider the following factors while selecting a lender:

  • Loan options available
  • Origination Fees.
  • Interest rates
  • Documentation Requirements.
  • Business time requirements
  • Penalties for early payment
  • Personal requirements
  • Fast funding or bad credit options (if you need them)
  • Customer Complaints and Better Business Bureau ratings

Types of Commercial Real Estate Loans

If you’re wondering where to receive a commercial construction loan, there are several options available. You must evaluate commercial loan rates from several lenders to determine which one is best for you.

The following is a list of the benefits and drawbacks of working with specific types of commercial real estate loans lenders:

#1. Banks

Most banks offer commercial loans for a variety of property types. A regular bank loan is typically worth around $1 million.


  1. Reasonable rates.
  2. Convenience and potential savings as an existing bank customer.
  3. Options for long-term finance.


  • Extensive documentation is required.
  • Slow procedure
  • Only available to applicants with strong or exceptional credit.

#2. Commercial financiers

Aside from banks, there are other non-bank finance organizations that can provide commercial real estate loans to small and medium-sized businesses. Commercial loan rates tend to be higher than bank rates; nevertheless, if you need a loan quickly, this could be a viable option.


  • Less stringent underwriting criteria.
  • approval in less time than banks.
  • Fees and closing costs are reduced.


  • Interest rates are frequently greater than those offered by banks.
  • A balloon payment in 5 to 10 years may be required.
  • Many of them are short-term loans.

#3. SBA 504 commercial real estate loans.

The SBA created these commercial real estate loans, which can be used to purchase real estate or long-term equipment. They are made up of two loans: one from a bank for up to 50% of the loan and one from a Certified Development Company for up to 40% of the loan. A deposit of at least 10% is required.


  • Interest rates below the market
  • 20 or 25-year terms
  • Minimum down payment


  • SBA commercial real estate loans size requirements must be met.
  • Protracted funding procedure

#4. SBA 7(a) Commercial Real Estate Loans

You can borrow up to $5 million through a connected lender using the SBA’s flagship loan, depending on your qualifications. These SBA commercial real estate loans can be used to build a new property, renovate an existing property, or purchase land or buildings. Rates are calculated using the prime rate plus a few percentage points.


  1. Interest rates that are competitive
  2. Terms of up to 25 years are possible.
  3. The majority of loans are fully amortized.


  • Company size restrictions
  • A good credit score is required.
  • Long approval process

It should be noted that SBA commercial real estate loans need at least 51% owner occupancy for existing buildings and 60% owner occupancy for new construction.

#5. Hard money lenders

Hard money loans are short-term loans based on the property’s value. These commercial real estate loans are typically issued by private companies and have greater down payment requirements. So, qualifying for the loan is simpler, and getting the loan is typically faster than with a standard mortgage.


  • Does not consider the borrower’s credit rating.
  • Quick approval
  • It is simpler to qualify for


  • Increased interest rates
  • The average LTV ratio ranges from 60% to 80%.
  • Temporary funding

#6. Conduit financiers

Conduit loans are commercial mortgages that are pooled with other types of commercial loans and then sold on the secondary market to investors. They will often finance a minimum of $1 million to $3 million, with durations ranging from five to ten years. Amortization is often carried out over a longer period, keeping payments low, but the balance is paid in one final, huge balloon payment.


  • Interest rates are low.
  • Amortization duration exceeds loan term
  • A personal guarantee is not required for a non-recourse loan.


  • Payment by balloon after a 5 to a 10-year term
  • Prepayment penalties are severe.

#7. Crowdfunding platforms

Crowdfunding platforms connect borrowers with private lenders. There are numerous commercial lending marketplaces. These services are an excellent choice for short-term bridge loans, which have to “bridge the gap” until you can get long-term financing.


  • Quick turnaround
  • Most credit scores qualify for loan approval.
  • Simple application procedure


  • Interest rates may be high.
  • Expensive origination fees
  • Traditional lenders are subject to fewer rules.

#8. Blanket Loans

If you intend to acquire multiple houses, a blanket loan can help make the process more manageable. You can have one lender, one payment, and one set of loan terms for several properties with this sort of financing. While this appears to be a pipe dream, there are significant drawbacks. For one thing, individual properties can be difficult to sell because they are all linked together. Second, because each property serves as collateral for the others, if one fails to generate the expected revenue, all of your investments may be jeopardized.

Commercial real estate loan rates, terms, and fees

Interest rateStarts around 3.5%
Down paymentAt least 25%
Loan termsFive to 10 years, with up to 25-year amortization
Debt-to-income requirementMinimum debt-service coverage ratio (DSCR) of 1.25
Minimum credit score660
Eligible property typesOffice, retail, industrial, hotels, restaurants, medical, entertainment and specialty properties

Key Differences Between Residential and Commercial Real Estate Loans

Commercial Real Estate Loans

  • Commercial real estate loans are typically issued to corporations (corporations, developers, limited partnerships, funds, and trusts).
  • Commercial loans often have terms ranging from five years to twenty years, with the amortization time often being greater than the loan term.
  • Commercial loan loan-to-value ratios typically vary between 65 and 80 percent.

Residential Loans

  • Individual borrowers are often get residential mortgages.
  • Residential mortgages are a type of amortized loan in which the debt is paid back in regular installments over time. The 30-year fixed-rate mortgage is the most popular residential mortgage product.
  • Certain residential mortgages, such as USDA or VA loans, allow for high loan-to-value ratios of up to 100 percent.

What distinguishes commercial real estate loans from consumer loans?

Individual (consumer) loans are not the same as commercial real estate loans. These loans have highly varying collateralization and underwriting requirements, as well as different rates, terms, and other characteristics.

For starters, there are significantly fewer programs for securitizing commercial loans than there are for personal loans. This implies that lenders must often hold many of these loans after they are given rather than selling them to investors, who bear the risk of loss if the borrower fails to repay the loan.

As a result, lenders are significantly more wary of making commercial loans. Minimum credit scores and down payments are frequently higher. Commercial real estate loans are also not eligible for mortgage insurance, therefore income requirements and interest rates are typically higher.

Furthermore, commercial loans do not often endure as long as personal loans. Unlike house loans, which are frequently provided for lengths of up to 30 years, commercial real estate loans are frequently issued for terms of only five or ten years. Loan amortizations, on the other hand, are sometimes lengthier – up to 25 years is common – leaving borrowers with balloon payments that they must either pay off or refinance at the end of their loan.


An investor (typically a business entity) purchases commercial real estate, leases out space and collects rent from the businesses that operate within the property. The investment is intended to be a rental property.

Lenders consider the loan’s collateral, the creditworthiness of the entity (or principals/owners), including three to five years of financial statements and income tax returns, and financial ratios such as the loan-to-value ratio and the debt-service coverage ratio when evaluating commercial real estate property loans.

Commercial Real Estate Loans FAQs

What credit score is needed for a commercial loan?

A credit score of at least 680 is normally required, and a credit score of above 700 is highly desirable.

What are the requirements for a commercial mortgage?

  • Have a deposit of 20% – 30% ready.
  • Become a homeowner.
  • Have owned two or more buy-to-let properties for at least 24 months.
  • Have some money in the bank in the form of savings.
  • Show proof of your income, whether it comes from a wage, self-employment, or rent.

What is the maximum SBA loan amount?

$5 million

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