Commercial real estate (CRE) loans help business owners establish income-producing properties used for business purposes. Like a residential real estate loan, a commercial property loan is a type of mortgage that is secured by a lien on the commercial property.

Investing in commercial real estate can be a costly affair since many office buildings and retail outlets are sold at a higher price than their residential counterparts. However, if secured, a commercial property can provide a steady passive income through numerous cash inflows, including:

  • Tenant rent
  • Tax benefits
  • Depreciation
  • Proceeds from sale
  • Operating expense recovery
  • Parking, vending and service fees

Without a commercial mortgage loan, however, most business owners don’t stand a chance of purchasing a commercial property. Thankfully, CRE loans are available that can make these dreams a reality—even if you don’t have cash or other assets to secure the loan.

Offered at affordable rates and agreeable terms, there’s never been a better time for new business owners to apply for commercial real estate financing.

Below, we’ll break down the various types of CRE loan products, how you can apply for them and how you can get approved without any hassles or headaches.

Types of Commercial Real Estate Loans

There are five main types of commercial real estate loans, with each having their benefits and drawbacks. No matter the type of business you own, if you’re in the market for a business real estate loan, you will want to apply for one of the following five products:

  • SBA 7(a) Loan
  • Traditional Mortgage
  • CDC/SBA 504 Loan
  • Commercial Bridge Loan
  • Commercial Hard Money Loan

When it comes to purchasing owner-occupied commercial properties, these five options are roughly ordered (from top to bottom) according to their popularity. Although, of course, it is possible to finance your commercial real estate investment project through cash reserves, the clear majority of business owners must, at some point, rely on the options above.


The most popular form of commercial real estate loan is a standard SBA 7(a) loan or a CDC/SBA 504 loan, both of which are partially secured by the U.S. Small Business Administration (SBA).

The former is a general-purpose loan for small businesses that can be put toward any business-related expense, while the latter must be spent on capital-intensive property (usually real estate or renovations).

Both loan options are meant for long-term borrowers with term lengths of 20 or 25 years, and interest rates range between five and 10 percent.

Traditional Mortgage

Unlike SBA-backed commercial property loans, traditional commercial mortgages are a type of commercial land loan that is issued exclusively by banks. These loans tend to be more difficult to qualify for, and generally, have strict requirements concerning years in business and annual revenues.

For this reason, they often aren’t the first choice among new business owners.

Commercial Bridge & Hard Money Loans

If you only need a short-term financing solution, you should consider applying for a commercial bridge loan or a hard money loan. The former refers to a loan that quickly reaches maturity, at which point the loan must be repaid in full or extended into the long-term.

Hard money loans, by contrast, are offered at higher interest rates and are targeted toward young businesses that cannot qualify for traditional loans for commercial property.

How Commercial Real Estate Loans Work: An Overview

Buying or investing in commercial real estate is both a thrilling and sometimes stressful endeavor. Saving up for a commercial real estate loan down payment is a major milestone in every business owner’s growth trajectory, and one that is usually necessary to meet lenders’ qualifications.

Commercial real estate loans can only be put toward the purchasing of existing or new properties. They can also be used after the fact to develop, construct or renovate a physical property or the land. Usually, individuals alone cannot take out a CRE loan. Instead, they are reserved for incorporated business entities.

As every business owner knows all too well, commercial real estate is costly. Thankfully, commercial real estate loans help you pay for these costs by putting a lien on your purchased property.

If you default on the loan or cannot make payments, the lender can seize the property to recoup their losses.

Since commercial real estate loans tend to range in the six, seven and eight figures, they are inherently risky for the creditor. If you don’t make good on your pledge to repay the loan, then the lender is out a substantial sum of money.

To mitigate the inherent risk of big-money lending, most commercial real estate loan lenders require a downpayment worth 25 to 30 percent.

Navigating Repayment Terms

One of the least-understood aspects of commercial real estate borrowing is the repayment term. Far too often we find that business owners inexperienced in the world of CRE lending are eager to jump on any offer extended to them.

You do need to pay attention to repayment terms to understand the effective cost of the loan.  

Generally, commercial real estate loans are offered on long-term contracts with repayment terms ranging between 15 and 30 years. However, some short-term real estate loans exist with repayment terms of five years or less—the downside, though, is that these are typically hard money loans with much higher interest rates.

Be aware of lenders who offered interest rates far below competitors’. In these cases, watch out for the repayment term. It’s not uncommon to find long repayment terms on lower-interest loans.

Although they may seem like a discounted rate at first glance, loans with longer repayment terms end up costing more in the long run.

How to Qualify for Commercial Real Estate Loans

If you need a loan to buy commercial property, then you should start taking the steps necessary to get approved for a commercial real estate loan such as an SBA 7(a) loan or a CDC 504. To guide you through the process, we’ve broken down each step below.

Know Your Score

Before you sign on the dotted line, there are several key pieces of information that you need to consider that will ultimately determine which loans you qualify for. First among them is your business credit score.

These scores are issued by credit reporting agencies like Equifax and TransUnion and provide a summary of your trustworthiness to lenders.  

Although personal credit scores range from 300 to 850, business credit scores follow a 100-point scale that can be found below:

  • Very Poor: 0-20
  • Poor: 21-40
  • Fair: 41-60
  • Good: 61-80
  • Excellent: 81-100

If you want to qualify for commercial real estate loans with no down payment, then you should fall safely within the highest business credit score bracket. The higher your score, the more likely you will get approved for a low-interest or shorter-term loan.

Other Qualification Factors

Your business credit score isn’t the only thing that determines your eligibility for a CRE loan. Other factors that come into play are:

  • Overall time in business
  • Value of collateral assets
  • Debt-to-income ratio
  • Annual revenues

For a well-rounded application, you will want to ensure that each element listed above is accounted for. In other words, you should aim to be in business for at least two full calendar years before you apply for a major loan, and your gross income should exceed your total debts. This way, creditors will have confidence in your ability to repay the loan.

Weigh Your Options

Today, banks aren’t the only game in town. We recommend doing your homework before settling on a lender. Ideally, you will consider banks, credit unions and even online alternative lenders to find a loan with qualification criteria, repayment terms and an interest rate that works for your business.

While your first thought might be to visit your local Bank of America or Wells Fargo branch, you should weigh every option listed above. Especially if your business is in the early stages of its growth, you may be surprised by the flexibility and affordability of online lenders.

Start Applying Today

When it comes to commercial real estate loans, there’s no shortage of options to choose from. Wherever you decide to apply, make sure that the repayment term doesn’t lock you into a never-ending debt spiral, and that the interest rate won’t upset your debt-to-income ratio.

For the best results, look into a healthy mix of traditional and online lenders to see which offers the best terms for your real estate financing needs.

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