Business Loans

How to Get a Commercial Real Estate Loan

Dec 07, 2023 • 10+ min read
Small business owner using a commercial real estate loan to renovate their business
Table of Contents

      If you’re considering purchasing commercial real estate, it’s worth exploring the option of a commercial real estate loan, also known as a commercial mortgage. This type of loan can be a valuable tool for small business owners looking to expand their operations or acquire additional property.

      But getting approved for a commercial real estate loan is not always easy. Lenders typically have stricter requirements compared to residential loans, and the process can be more complicated and time-consuming.

      However, with proper planning and preparation, you can increase your chances of obtaining a commercial real estate loan. In this blog post, we’ll discuss the steps you can take to secure financing for your commercial property.

      What is a commercial real estate loan?

      These small business loans have been precisely engineered for real estate projects. Here are some examples of relevant uses:

      • Building a new office building
      • Renovating your existing restaurant
      • Opening a new retail space
      • Purchasing an existing warehouse
      • Getting out of a lease so you can become a property owner
      • Refinancing for an extension of your payment term

      As you can see, commercial real estate loans are more versatile than the name suggests. So if your project is real estate-related, there’s a good chance that it qualifies.

      These loans are unique because they offer more generous interest rates than many other types of small business loans, largely because the real estate involved with the loan will actually be used as collateral.

      When you secure a loan with such a valuable and readily accessible asset, you can expect rates that begin as low as 6.25%. As for the dollar amount, a commercial real estate loan can start at $250,000 and go as high as $5,000,000. Expect the repayment terms to fall somewhere between 10 and 25 years.

      How to find the right commercial real estate loan.

      Finding the right commercial real estate loan can be a complex decision, involving careful evaluation of your business needs, financial capacity, and long-term objectives. Let’s dive into the key factors to consider in choosing the right loan for your business.

      1. Determine your goals.

      The first step of any loan process is identifying the financing option that best matches your purposes. To do this, you’ll need to decide exactly how much money your project will require and how soon you’ll need to get that money. These two factors help to narrow the list of viable options and save you valuable time.

      After reviewing your loan amount and timeline, you may find that a commercial real estate loan is the ideal solution. You’ll then need to figure out the costs of various loans to separate the top contenders for your business. This process is done by lining up comparable elements between loans.

      2. Compare lenders.

      There are a plethora of lenders offering commercial real estate loans, each with their distinctive terms, conditions, and rates. It’s crucial to take time and compare various lenders, considering factors such as interest rates, loan terms, additional costs (like origination fees), and customer reviews. Traditional banks, credit unions, and online lenders all have different merits and demerits.

      Before proceeding with the loan application, check whether you meet the lender’s minimum qualifications. These may encompass your credit score, annual revenue, and years in business. In addition, most lenders will require a down payment of 10% to 30% of the property’s purchase price.

      3. Apply for the loan.

      Once you’ve determined your needs and compared lenders, the next step is to apply for a commercial real estate loan. The application process requires you to provide various documents and data.

      • Financial records – Lenders will want to see your business’ financial records to assess your ability to repay the loan. You will need to provide business and personal financial statements, income tax returns, and a credit report. If your business is new, you may be asked for a business plan or revenue projections.
      • Property information – You’ll need to share details about the property you wish to purchase or renovate. This includes the property’s address, purchase price, appraisal value, and blueprints (or renovation plans, if applicable).
      • Legal documents – Lenders may also request legal documents such as incorporation documents, commercial leases, and contracts.

      Remember, every lender has different requirements, so it’s essential to understand what is needed before starting the application process. The sooner you can gather and provide this information, the smoother the application process will be.

      The approval process can take anywhere from a few weeks to several months. Once you’ve been approved, you’ll need to review the loan terms carefully before agreeing to them.

      Requirements for a commercial real estate loan.

      To secure a commercial real estate loan, you must meet certain requirements that prove your ability to repay the loan.

      • Credit score – Most lenders require a personal credit score of at least 650. This gives them confidence in your ability to handle credit responsibly. Higher scores can lead to better interest rates.
      • Business plan – Lenders want to see a well-crafted business plan that outlines your strategies for growth and income. This should include market analysis, competitive analysis, marketing strategies, and detailed financial projections.
      • Debt service coverage ratio (DSCR) – The DSCR measures your business’ ability to service its debt. A ratio of 1.25 or higher is typically considered good.
      • Property value – The property’s appraisal value needs to be high enough to cover the loan amount. Lenders will conduct their own appraisal as part of the application process.
      • Down payment – You’re typically required to put down 10% to 30% of the property’s purchase price.
      • Business financials – Lenders will want to see at least two years of financial statements for your business to evaluate its profitability.

      Remember, every lender could have slightly different requirements, so make sure to check with your lender to know exactly what you need to apply.

      Additional qualification criteria for a construction loan.

      In addition to the general requirements for a commercial real estate loan, obtaining a construction loan often necessitates additional qualifications.

      • Construction blueprints and detailed plans – Lenders will need to see a comprehensive set of construction plans and blueprints before they can accurately assess the risk associated with your project. These should be prepared by a qualified architect or engineer.
      • Qualified builder – A legitimate, licensed, and insured builder is a requirement for most construction loans. The lender will need to validate the builder’s qualifications and reputation before approving the loan.
      • Cost estimate – A detailed cost breakdown is necessary. This estimate should include costs for labor, materials, permits, land development, and contingencies.
      • Appraisal – The lender will want an appraisal of the future value of the building upon completion. This is sometimes called the after-repair value (ARV).
      • On-site inspections – Lenders will conduct periodic on-site inspections to ensure the construction is proceeding as planned and the funds are being used appropriately.

      Remember, the qualifications can vary based on the lender and the specifics of the construction project, so it’s essential to have a thorough discussion with your lender about what is needed.

      Interest rates and fees

      Just like any other loan, a commercial real estate loan comes with its own set of interest rates and fees.

      Interest rate

      Your interest rate—often expressed as an Annual Percentage Rate (APR)—is the amount you’ll be charged for borrowing money, represented as a percentage of your loan amount. Commercial real estate loans generally offer more competitive interest rates, sometimes as low as 6.25%, because the real estate you’re purchasing will serve as collateral for the loan.


      The fees associated with a commercial real estate loan can vary, but some common fees include application fees, origination fees, and appraisal fees. Application fees cover the cost of processing your loan application, while origination fees are charged by the lender for creating the loan. Appraisal fees are paid to a third party to assess the value of the property being purchased.

      Prepayment penalties

      In addition, some loans may include prepayment penalties, which are fees charged if you pay your loan off early. It’s crucial to understand all the fees and interest associated with your loan so you can accurately calculate the total cost of borrowing and ensure it aligns with your business’s budget and financial plan.

      Comparing costs

      As you evaluate your best loan options, here are four popular pricing metrics that will help you break down the cost into manageable views:

      • Annual percentage rate (APR) – Anyone who has purchased a home or vehicle is familiar with this metric, which represents the cost of your loan on an annual basis.
      • Total cost of capital (TCC) – Sometimes it helps to get a macro view. With the TCC, you’ll see an overall cost that takes into account interest—fees on loans that don’t charge interest, plus ancillary fees.
      • Average monthly payment – Because budgets are often viewed on a monthly level, this metric is helpful. Even if your loan were to have daily or weekly payments, you could still calculate those payments on a monthly scale.
      • Cents on the dollar – The simplest of all the pricing metrics, cents on the dollar breaks down the amount you’ll pay in fees and interest for every dollar you borrow.

      While these metrics will give you a clearer view of your loan costs, they’re far from your only resource. Commercial mortgage calculators are readily available and are a simple way to crunch the numbers and improve your understanding of various costs.

      Where to get a commercial real estate loan.

      There are multiple sources from which you can secure a commercial real estate loan. Each has its own benefits and drawbacks, thus your choice depends on your specific needs and circumstances. Here are some of your main options:

      • Banks – Banks are traditional sources of commercial real estate loans. They typically offer competitive interest rates and longer terms. However, they also have stringent approval criteria and require extensive documentation, which can be a challenge for some small businesses.
      • Non-bank lenders – These include online lenders, credit unions, and private lenders. Non-bank lenders generally have less stringent approval criteria, faster approval times, and more flexible terms than banks. However, their interest rates can be higher.
      • Commercial mortgage-backed securities (CMBS) lenders – Also known as conduit lenders, they pool and sell commercial mortgages on the secondary market. These loans have fixed, low-interest rates and longer terms and are typically nonrecourse, meaning the lender can only claim the collateral in case of default.
      • Hard money lenders – These are mostly private investors who offer short-term, high-rate loans. The advantage here is speed and a less rigorous approval process, making them suitable for short-term investment opportunities or when a faster closing time is paramount.
      • Real estate investment trusts (REITs) – These are companies that own, operate, or finance income-generating real estate. They provide loans for commercial real estate but usually require a higher return on their investment.
      • SBA 504 loan – The SBA 504 loan is offered by the U.S. Small Business Administration (SBA) for purchasing fixed assets, such as land and buildings. The advantage here is that you can access lower interest rates with a longer term with a 10% down payment.
      • SBA 7(a) loan – The SBA also offers the SBA 7(a) loan for any kind of business expense including purchasing real estate. 

      Repaying a commercial real estate loan.

      Repaying a commercial real estate loan typically involves a combination of regular interest payments and a final balloon payment at the end of the loan term. The specific repayment schedule will depend on the terms set by your lender and the type of loan you have obtained.

      • Regular interest payments – Most commercial real estate loans require monthly interest payments for the duration of the loan term. These payments are calculated based on the loan’s interest rate and the remaining principal balance. Interest rates can be either fixed or variable, depending on the terms of the loan.
      • Principal amortization – Some loans include a principal amortization schedule, in which a portion of each payment is applied towards reducing the principal balance of the loan. This means that over the term of the loan, you’ll gradually reduce the principal until the loan is fully repaid. However, some commercial real estate loans have a shorter amortization schedule than the loan term, leading to a balloon payment at the end.
      • Balloon payment – If your loan has a balloon payment, this means that the remaining balance of the loan is due at the end of the loan term. This could be a substantial amount, depending on the size of the loan and the amortization schedule. It’s important to plan for this payment and ensure that you have a strategy for covering it. This could involve selling the property, refinancing the loan, or using other business assets.
      • Prepayment – Some commercial real estate loans allow for prepayment, where you can pay off the loan before the end of the term without incurring a penalty. Others might impose a prepayment penalty to compensate for the interest the lender would lose. Check the terms of your loan agreement to understand the rules around prepayment.

      Remember, the specifics of your repayment plan will depend on the terms of your loan agreement, so it’s crucial to understand these details before you sign. Also, ensure that you manage your finances effectively to avoid defaulting on the loan, as this could lead to the loss of your property.


      Getting a commercial real estate loan is a significant undertaking that requires careful consideration and preparation. However, with proper planning and research, you can find the right option.

      Quickly compare loan offers from multiple lenders.

      Applying is free and won’t impact your credit.


      The amount you can borrow will depend on factors such as the value of the property, your credit score, and your business’s financials. Most lenders will typically lend up to 75-80% of the property’s value.

      The time it takes to get a commercial real estate loan can vary depending on the lender and your specific circumstances. On average, it can take anywhere from 30 to 90 days to complete the entire process. However, online lenders may offer faster approval times.

      Commercial real estate loans are intended for properties that generate income, such as office buildings, retail spaces, warehouses, and multi-family properties. Lenders will often have restrictions on the type of property they will finance, so it’s essential to check with your lender to confirm their requirements.

      It may be challenging to secure a commercial real estate loan with bad credit. Most lenders require a personal credit score of at least 650 and may also consider your business’ financials. However, some non-bank lenders may be more lenient with credit scores. It’s best to discuss your options with potential lenders directly.

      Some ways to improve your chances of getting approved for a commercial real estate loan include having a strong credit score, a solid business plan, and sufficient collateral. It can also be helpful to have a down payment of at least 20%, as this shows the lender that you are invested in the property’s success.

      Additionally, maintaining good financial records and keeping your debt-to-income ratio low can demonstrate financial responsibility to lenders. Remember, every lender has different requirements, so it’s essential to have a thorough discussion with your lender about what they are looking for in an applicant.

      Before applying for a commercial real estate loan, it’s crucial to gather all the necessary documentation that lenders will require during the application process. This will not only save you time but also increase your chances of a smooth and successful application process. Now, let’s delve into the key documents you need to have ready.

      • Personal background information such as education history, previous addresses, names you have used, and criminal record
      • A detailed resume that presents your relevant business experience
      • A robust business plan
      • Profit and loss statement
      • Cash flow statement
      • Balance sheets
      • Personal and business tax returns for the past three years
      • Signed personal financial statements
      • Projected financial statements
      • Personal and business bank statements for the past year
      • The value of the property you will put up as collateral
      • Business licenses and registrations
      • Articles of incorporation
      • Copies of contracts you have with third parties
      • Franchise agreements
      • Commercial leases
      • Business debt schedule
      • Proof of business insurance

      *The information in this blog is for informational purposes. It should not be used as legal, business, tax, or financial advice. The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (December 7, 2023). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.

      About the author
      Christina Sanders

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