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Commercial Real Estate Lending Guide

Written by Banks Editorial Team

Updated December 18, 2023​

6 min. read​

It can take time to navigate the world of commercial real estate. But with the proper knowledge and guidance, you can quickly identify the best lending solutions for your business.

As you explore commercial real estate financing solutions, you’ll quickly notice that there are numerous types of loans to choose from. Each one is designed to meet a specific business need. Here’s what to know to help you determine the ideal loan for your situation.

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What is Commercial Real Estate Lending?

Commercial real estate lending is used to describe financing provided to businesses to acquire, construct or refinance commercial properties. These include office buildings, industrial facilities and retail spaces, and the loans are generally secured by the property.

How Does Commercial Real Estate Lending Work?

Commercial real estate loans are offered by traditional banks, credit unions and online lenders. You’ll apply for a loan with a lender and provide the documentation they request to be considered for funding. If approved, the property is typically used as collateral to secure the loan.

Residential vs. Commercial Real Estate Lending

When comparing residential and commercial real estate lending, you will find several key differences:

  • Business entity: Commercial loans are reserved for companies and investors. Residential loans are specifically for individuals.
  • Loan approval: The approval process for commercial loans generally focuses on the profitability of the property and the borrower’s business background. Residential loan approvals are based on the borrower’s creditworthiness, income and debt load.
  • Property types: Commercial properties consist of office buildings, retail spaces and warehouses, just to name a few. Residential properties are generally single-family homes and multi-family homes.
  • Interest rates: Commercial loans tend to have higher interest rates than residential loans due to the level of risk posed to the lender.
  • Loan terms: Commercial loans come with shorter loan terms – typically between five- and 15- years. Residential loans have loan terms of up to 30 years.
  • Down payment: Commercial loans typically require a steep down payment compared to residential loans.

What are the Types of Commercial Real Estate Lending?

There are several commercial real estate lending solutions to choose from.

Traditional Commercial Loans

Traditional commercial loans are provided by banks and credit unions. These loans can be used to purchase, refinance, or develop commercial properties. They offer flexible terms and may require collateral.

Banks typically offer competitive interest rates, but qualifying for these loans can be more difficult, as lenders often have strict lending criteria.

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SBA Loans

SBA loans are also available to business owners looking to purchase, refinance or expand their commercial real estate portfolio. These loans come with favorable terms and lower interest rates, making them a popular choice for entrepreneurs.

Two popular types of SBA loans for commercial real estate include the SBA 7(a) loan and the SBA 504 loan. Each loan has different eligibility requirements and loan terms.

Office Loans

Office loans cater specifically to financing the acquisition or refinancing of office buildings. These loans also have various terms and interest rates, depending on the lender, location, size, and condition of the property.

Construction Loans

Construction loans are designed for builders, developers and investors seeking funding for new construction projects. These short-term loans cover the cost of construction and are typically interest-only. Once the project is achieved, you have the option to refinance into a commercial mortgage with an extended term.

Hard Money Loans

Hard money loans are short-term, asset-based loans catering to borrowers struggling to secure financing with traditional lenders. Expect higher interest rates and shorter loan terms, as these lenders focus primarily on the value of the underlying property instead of your creditworthiness.

Bridge Loans

Bridge loans are short-term loans used to bridge the gap between purchasing a new property and securing permanent financing. They’re ideal for quick acquisitions or refinancing, and you can often get approved quickly. However, bridge loans come with higher interest rates and brief loan terms.

Owner-Occupied Commercial Mortgages

Owner-occupied commercial mortgages are for business owners planning to occupy more than 50% of the property that will be purchased or refinanced with the loan. These loans usually have more favorable terms and lower interest rates, as the owner’s business operations serve as an additional source of financial security for lenders.

Income-Producing Commercial Mortgages

Income-producing commercial mortgages are for investors purchasing or refinancing commercial properties that generate income. They have specific lending guidelines based on the property’s projected income, occupancy rates, and overall financial performance. The loan approval process also requires detailed documentation to verify the income and expenses associated with the property.

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What are the Typical Rates and Terms?

Commercial real estate loans usually have shorter terms than residential mortgage loans – it varies by lender and loan type. To illustrate, you could get a loan with a five-year term and a 15-year amortization period. This means that during the five-year loan term, you would make monthly payments based on a 15-year repayment schedule. After the initial five-year term, you would need to refinance the loan, pay the remaining balance or negotiate new loan terms.

Interest rates on commercial real estate loans usually range from 4% to 5%. However, these rates also vary by lender. The rate you’ll receive also depends on factors like loan type and creditworthiness.

As mentioned above, commercial real estate interest rates are often higher than those for residential loans. Expect an increase of 0.5% to 1% above the prime rate for mortgages.

How Do You Qualify for Commercial Real Estate Lending?

The lending guidelines vary, but here are some general eligibility criteria to keep in mind:

  • Credit Score: A solid personal and business credit score is essential. Most lenders require a minimum credit score of 660. Still, higher scores increase your chances of approval and could result in lower interest rates.
  • Debt Service Coverage Ratio (DSCR): Lenders want to ensure that your property’s net operating income (NOI) exceeds your debt payments. Usually, a minimum DSCR of 1.25 is required.
  • Loan-to-Value (LTV) Ratio: It is the percentage of the property value you’re requesting to be financed. Most lenders limit the amount to 65-85% of the property’s fair market value, so you’ll need to cover the remaining 15-35% by making a hefty down payment.
  • Owner-Occupancy: Commercial real estate loans typically require the borrower’s business to occupy at least 51% of the property.
  • Property Assessment: Lenders will require a professional appraisal to determine the property’s true market value and if a loan for the amount you’re requesting is feasible.
  • Business Performance: Lenders will analyze your company’s financial performance to make a lending decision. It’s also not uncommon to need at least two years in business, operating at a profit.

If you are unsure about meeting the qualifications for a commercial real estate loan, consider contacting an online lender like ROK Financial. They don’t require a minimum credit score and will assign you a business lending advisor to help you review the different loan options, navigate the loan application, and process until funded. If you want to talk to one business advisor from the ROK’s team, fill out this simple contact form, and someone will contact you to discuss your loan options, depending on your specific business circumstances.

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What Should You Consider When Choosing a Commercial Real Estate Lender?

Finding the best commercial real estate lender for your company’s needs doesn’t have to be overwhelming. Here’s what to consider:

Interest Rates

One of the most crucial aspects to focus on is interest rates. They can vary greatly, depending on the type of loan, the borrower’s creditworthiness, and of course, the lender. So be sure to shop around and compare rates from different lenders. Doing so will help you identify the most competitive offer that’s also suitable for your financial situation.

Loan Amount and Term

Evaluate the maximum loan amount offered by the lenders. The amount generally ranges from 65% to 85% of the property’s loan-to-value (LTV), requiring a down payment of 15% to 35% of the property’s fair market value. Also, consider the loan term, as it typically falls between five to ten years, with amortization up to 25 years. Finally, choose a lender that accommodates your desired loan amount and term.

Loan Types and Programs

Different lenders offer various loan types and programs. Understanding what’s available will help you determine which option is right for your investment needs. As mentioned above, The most common commercial real estate loan types include:

  • Traditional commercial loans
  • SBA loans
  • Office loans
  • Construction loans
  • Hard money loans
  • Bridge loans
  • Owner-occupied commercial mortgages
  • Income-producing commercial mortgages

Research the lender’s loan types and programs, along with their respective eligibility requirements and processes, to make the best choice.

Lender Reputation and Experience

It’s essential to consider the lender’s reputation and experience in the industry. Online reviews, testimonials, and feedback can provide valuable insights into the lender’s track record and customer service quality. Also, check with the Better Business Bureau (BBB) to learn more about the company’s reputation.


Lastly, opt for a flexible lender. Try to gauge their approach to working with borrowers and their ability to adapt to your specific needs. A proactive lender will work closely with you throughout the loan process and help tailor a financing solution that meets your business objectives.

Keep these factors in mind as you navigate the process of choosing a commercial real estate lender to ensure that you find the best fit for your investment needs.

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Is Commercial Real Estate Lending Right for Your Business?

Before deciding if commercial real estate lending is ideal, evaluate your company’s capital needs and financial situation. It’s equally important to compare available options with alternative financing solutions.

Ultimately, understanding the various lending options available, along with their terms and interest rates, will help you make an informed decision. If you need additional insight, consider consulting with an experienced commercial real estate professional, like a lender or broker, who can further assist you.

If you decide to move forward, ensure that your business has a solid financial track record and a strong credit history. Also, gather any documentation the lender will need beforehand to help streamline the application and underwriting process. Finally, you can confirm the guidelines and requirements by reaching out directly to the lender you select.

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