Commercial Real Estate Loans

Whether you want to buy an existing space for your business or build a new location, commercial real estate loans can help you get there. Banks, private investors, independent lenders, pension funds, life insurers and the Small Business Administration all offer commercial real estate lending services.


Different lenders may have slightly different requirements, but you can expect solid credit and a strong financial history to be important for most types of commercial loans.


There are a variety of types of commercial real estate loans, and it’s important to understand the differences between them before you apply. Typically, lenders will require you to offer up some form of collateral in case your business fails to make the necessary loan payments. This could take the form of a lien on your real estate or other assets that your company owns.

The amount of assets you’re required to pledge will vary depending on the lender. For example, some banks will require you to provide a down payment of at least 20 percent of the value of the property. Others may require you to offer up your entire ownership stake in the property in case of a default. Generally, commercial real estate is the most common form of collateral used by lenders.

However, you can also use your business’s cash flow to secure a commercial loan. In these cases, the lender will assess your company’s financial situation to determine whether you can afford the loan payments. The lender will also want to know your plans for the property. For instance, if you plan to lease out 50 percent of the space, your lender will consider that a more speculative investment and may require more extensive underwriting.

In addition to the above considerations, borrowers should also be aware of how much higher interest rates are on commercial real estate loans than those for personal mortgages. This is because lenders consider businesses riskier to lend money to than individual consumers. They’re also more likely to have shorter credit histories than individual people.

Interest Rates

When it comes to commercial real estate loans, rates can vary quite a bit, depending on the lender and type of loan. For example, bank loans tend to come with higher interest rates than online lenders, but their applications are also typically processed much faster.

Interest rates charged on Commercial real estate loans are based on a variety of factors, including the property’s value and the potential income it will generate. However, the biggest factor that impacts commercial mortgage rates is a borrower’s creditworthiness. Therefore, it’s important to maintain a high credit score in order to secure the lowest possible commercial real estate loan rates.

Another factor that influences commercial mortgage rates is the structure of the loan. Some loans are fully amortizing, meaning that each payment will reduce the balance of the loan until it’s completely paid off. Others are structured with a balloon payment, which means that at the end of the loan’s term, you’ll owe a lump sum instead of monthly payments.

Business lines of credit are another common type of financing for commercial real estate. These are similar to business credit cards, except that you’ll be given a funding limit that you can borrow from at any time. They offer flexible terms and low interest rates, but they can also be difficult to qualify for if you have poor credit.

Recourse vs. Non-Recourse

Recourse and non-recourse provisions are often part of the terms of a commercial real estate loan. Recourse loans give the lender the right to go after the borrowers and/or guarantors personal assets in addition to the property in the event of a default. Non-recourse commercial loans, on the other hand, only allow the lender to take the property and/or underlying debt as collateral in the event of a default.

Whether or not you qualify for non-recourse financing will depend on the stage of your property development and the lender. Construction and short-term bridge loans are typically recourse, while long-term loans on stabilized properties can be non-recourse.

The majority of borrowers will find it difficult to secure a non-recourse loan until they have a long track record of investing in and stabilizing income-producing property. However, specific government-sponsored loan programs such as Fannie Mae and Freddie Mac can provide non-recourse financing to investors seeking to invest in multifamily properties.

Even if you qualify for non-recourse financing, it’s still important to review the loan documents carefully and be aware of what’s covered by the agreement. Most non-recourse loan agreements include a set of exceptions that can trigger partial or full recourse liability. These exceptions, commonly referred to as “bad boy” carve out provisions, can include things like bankruptcy, fraud, misrepresentation and willful dumping of waste at the property.


If you’re looking for a commercial real estate loan, make sure you understand the fees involved. These can include loan application, origination and appraisal fees, as well as closing costs such as title insurance, a survey, zoning report and more.

In addition to these common loan fees, some lenders also require that you meet certain requirements before they will approve your commercial real estate financing. These requirements can range from your business’s average net operating income (NOI) to the number of years your company has been in operation. You may also have to provide a detailed business plan, as well as financial statements and tax returns.

Many types of lenders offer commercial real estate loans, including banks, credit unions, CMBS lenders and life insurers. The Small Business Administration also offers two loan programs that can make owning your commercial property more affordable for small businesses.

Whether you’re buying or renovating your business’s next space, or just need to expand with more inventory, a commercial real estate loan can help you reach your goals. But not all lenders offer the same types of loan and terms, so it’s important to shop around to find a lender that offers commercial real estate financing with the terms you need. Then, you can focus on your business and leave the real estate details to a professional.