What is a commercial real estate loan?

A commercial real estate loan (also known as a commercial mortgage or business mortgage loan) is business financing used to purchase, develop, renovate, or refinance income‑producing property. This property can include offices, warehouses, retail centers, and various industrial buildings. Commercial real estate (CRE) loans differ from residential real estate loans in their terms, qualification criteria, down payment requirements, and repayment structures.

Why is commercial real estate lending important for businesses in the USA right now?

Commercial property financing is a key tool for U.S. businesses planning to expand or invest in real estate. It enables access to capital to grow asset value, increase rental income, and leverage property equity. Real estate lending remains essential amid rising rates and shifts in real estate markets nationwide.

What types of commercial real estate loans are available?

• Permanent commercial mortgage loans: These are long-term loans with fixed or variable interest rates.
• SBA 504 and SBA 7(a) loans: Government-backed CRE loans for small businesses often come with lower interest rates and superior repayment terms.
• Bridge and hard money loans: These are short-term and higher-risk loans that come with faster approvals.
• Construction and renovation loans: These loans offer funding for new builds or major property improvements.

How do commercial real estate loans work?

CRE loans typically require a larger down payment than traditional property loans, with requirements as high as 20% to 35%. Lenders assess risk using property value, business income, and credit. Repayment terms for commercial real estate loans range from 5 to 25 years, and they are offered with or without balloon payments. Interest rates depend on loan type, lender, and borrower profile.

What qualifications do lenders require for a commercial property mortgage?

Businesses that want to take out a commercial real estate (CRE) loan should have:

• Strong business credit and consistent cash flow
• Loan-to-value (LTV) ratios of 65% to 80%
• Debt service coverage ratio (DSCR) of 1.25 or higher
• Detailed business plan and property appraisal
• Owner-occupancy for SBA loans (51% minimum)

How are commercial loan rates calculated?

Commercial mortgage rates are based on:

• Type and term of the loan (fixed or variable)
• Borrower’s credit score and financials
• Loan-to-value (LTV) and debt service coverage (DSCR) ratios
• Current market conditions and Federal Reserve policy

Important note: Interest rates for SBA, bridge, and private lender loans vary significantly.

What documents are needed to apply for a business mortgage loan?

Before you apply for business funding for real estate, make sure to have the following documents in order:

• Two to three years of business tax returns
• Profit and loss statements
• Balance sheets
• Business plan and use-of-funds description
• Commercial property details and appraisal
• Personal and business credit history

How do I compare commercial lenders and find the best terms?

To find the best CRE loan for your needs, consider the following moves:

• Use a commercial loan calculator to compare repayment terms across a variety of lenders and loan types.
• Get quotes from top commercial lenders, banks, SBA partners, and credit unions.
• Check fees, closing timelines, prepayment penalties, and repayment terms.
• Seek out reviews or referrals from CRE investors and brokers.

What are the common mistakes in commercial business finance applications?

Watch out for these borrowing mistakes before you sign on the dotted line for a commercial real estate loan (CRE):

• Underestimating the down payment or closing costs
• Overlooking DSCR requirements
• Choosing lenders without comparing options
• Failing to gather documentation before the application
• Confusing commercial vs. residential real estate lending standards