Commercial real estate loans are a cornerstone of business expansion, offering the financial resources necessary for the purchase, renovation, or refinance of commercial properties.
Whether you’re a small-business owner, a real estate investor, or a developer, understanding the intricacies of these loans can help you make informed decisions that will benefit your business and financial future.
This guide will cover everything from the basics of commercial real estate loans to the types available and how to qualify, ensuring you’re equipped with the knowledge to find the best loan for your needs.
What Are Commercial Real Estate Loans?
Commercial real estate loans are specialized financing solutions designed to help businesses and investors acquire, upgrade or refinance commercial properties.
Unlike residential mortgages, these loans are used to purchase properties intended for business purposes, such as office buildings, retail spaces, industrial facilities, and multifamily properties.
- Types of properties: Commercial loans can be used to finance a wide variety of property types, including office buildings, retail centers, apartment complexes, warehouses, and mixed-use developments.
- Who they are for: These loans typically go to business owners looking to buy or expand their physical locations, investors interested in income-generating properties, and developers working on new construction or renovation projects.
Types of Commercial Real Estate Loans
Commercial real estate financing comes in several forms, each tailored to specific needs and situations. The type of loan you choose depends on the property, your business goals, and your financial circumstances.
1. Traditional Bank Loans
Traditional bank loans are the most common form of commercial real estate financing. They often offer the longest terms and lowest interest rates, making them a preferred choice for businesses with strong financial profiles.
However, they also come with strict qualification criteria, such as excellent credit and strong business financials.
- Loan amounts: Typically range from $100,000 to millions, depending on the lender.
- Interest rates: Vary over time. As of May 2025, they generally ranged from 2% to 11%, according to reports.
2. SBA 7(a) and 504 Loans
The U.S. Small Business Administration (SBA) offers two popular loan programs for purchasing commercial property:
- SBA 7(a) loan: A flexible loan that can be used for various business purposes, including buying real estate. These loans can offer up to $5 million, with terms of up to 25 years for real estate.
- SBA 504 loan: A loan specifically designed for purchasing commercial real estate and equipment. This type of loan is structured through a combination of a private lender and a Certified Development Company (CDC), and they offer favorable interest rates and terms.
3. Bridge Loans
Bridge loans are short-term loans designed to “bridge” the gap between a borrower’s immediate financing need and more permanent funding. They’re often used to purchase or refinance a property quickly, typically before securing long-term financing.
These loans usually have higher interest rates and shorter terms, generally ranging from six months to three years. They’re commonly used by real estate investors to flip properties, acquire time-sensitive deals, or secure properties while waiting for the approval of a traditional loan.
4. Hard Money Loans
Hard money loans are typically secured by real estate and based more on the value of the property (collateral) than the borrower’s credit profile.
While they’re easier and faster to qualify for than traditional bank loans, they come with higher costs and stricter repayment terms.
Investors often use hard money loans for fix-and-flip projects, bridge financing, or situations where speed is critical.
- Term length: Usually 6 to 24 months.
- Interest rates: Vary, but typically can range from 10% to 20%, depending on the lender.
5. Equity Loans and Lines of Credit
If you already own a commercial property, you can tap into its equity to finance other business needs. Equity loans or lines of credit allow you to borrow against the property’s value, giving you flexibility in using the funds.
How Commercial Real Estate Loans Work
Here’s an overview of how commercial real estate loans work:
Collateral
The property itself serves as collateral. If the borrower defaults, the lender can seize the property to recover the loan amount.
Loan Terms and Rates
Terms for commercial loans generally range from five to 25 years, depending on the loan type. Interest rates vary widely. Right now, they fall between 2% and 11%, depending on factors such as the borrower’s credit score, the loan amount, and the lender’s risk assessment.
Repayment Structures
Most commercial real estate loans feature fixed or variable interest rates. Fixed-rate loans lock in the interest rate for the life of the loan, while variable-rate loans may offer lower initial rates but can increase over time.
Many commercial real estate loans include a balloon payment, which is a large lump sum you have to pay at the end of the loan term. This setup is common with shorter loans, such as those lasting five, seven or 10 years.
How to Qualify for a Commercial Property Loan
Qualifying for a commercial real estate loan can be challenging, as lenders require detailed documentation and proof of financial stability. Here are the most important factors lenders consider:
Credit Score Requirements
Lenders typically look for strong credit scores before offering the best interest rates. A lower score might still qualify, but it will likely result in higher rates.
Down Payment Requirements
Most commercial real estate loans require a down payment of 10% to 30% of the property’s purchase price. SBA loans tend to have lower down-payment requirements of around 10%, making them more accessible to smaller businesses.
Business Financials
Lenders will scrutinize your business’s financial health, including revenue, profitability, and cash flow. Be prepared to provide several years’ worth of financial statements and tax returns.
Property Value and Cash Flow Projections
Lenders need to be confident that the property can generate enough income to cover the loan payments. Appraisals and cash flow projections are often required to assess the property’s earning potential.
Pros and Cons of Commercial Real Estate Loans
Pros
- Opportunity to build equity: As you pay off the loan, you build equity in the property, which can be used to secure additional financing. If the property’s value rises, you can also earn a profit when you sell the property.
- Tax benefits: Interest payments on commercial loans can be tax-deductible, which can provide significant savings.
- Flexible financing options: Thanks to the many loan types available, businesses can find financing that suits their specific needs.
Cons
- High barriers to entry: Commercial real estate loans often have strict qualification requirements and high down payments, making it difficult for some businesses to qualify.
- Long approval process: Securing a commercial loan can take several months, with extensive documentation required.
- Risk of capital loss: If the property value decreases or your business cannot meet its payment obligations, you risk losing the property and capital.
Key Considerations Before Applying
Before applying for a commercial real estate loan, consider the following factors:
- Loan purpose: Clearly define your goals, whether it’s purchasing, renovating, or refinancing a property. Your purpose will determine the best loan type for you.
- Financial health: Ensure your credit score, business financials, and cash flow are in good shape before applying. This will improve your chances of approval.
- Market conditions: Be aware of fluctuating property values and interest rates, as they can significantly impact your loan terms and investment profitability.
Application Process for Commercial Real Estate Loans
Step 1: Prequalification
Check your personal and business credit scores and your business financials to determine if you’re eligible for a commercial loan. Prequalification with a lender can help you understand your options.
Step 2: Loan Comparison
Use loan comparison tools or marketplaces, such as StackSource, to find the best rates and terms for your needs.
Step 3: Documentation
Gather essential documents such as tax returns, income statements, property appraisals, and business financial projections.
Step 4: Approval and Closing
Once you’re approved, work with the lender to finalize the loan terms and complete the closing process, which typically involves finalizing legal documents and securing property insurance.
The Bottom Line
Commercial real estate loans offer businesses the opportunity to purchase, build, expand, or refinance properties, making them a critical tool for long-term success.
With various loan options available — including SBA loans, traditional bank loans, and hard money loans — business owners can find solutions that align with their goals and financial standing.
Always consult with a financial advisor or loan officer to ensure you make the best decision for your business’s growth and stability.