How to Get a Commercial Real Estate Loan

Securing a commercial real estate loan is a crucial step for investors, business owners, and developers looking to purchase, refinance, or expand their commercial property holdings. As a commercial real estate broker, I’ve guided countless clients through the complexities of commercial real estate lending, ensuring they find the right financing for their goals. In this article, you’ll learn how to successfully secure a commercial real estate loan, the different types of loans available—including the SBA 504 loan—and expert tips to improve your approval odds.

What Is a Commercial Real Estate Loan?

A commercial real estate loan is a type of financing used to purchase, refinance, or renovate income-producing properties such as office buildings, retail centers, warehouses, and industrial real estate. Unlike residential loans, these loans are tailored for business purposes and typically involve larger amounts, stricter requirements, and different underwriting standards.

Types of Commercial Real Estate Loans

Choosing the right loan depends on your property type, business goals, and financial profile. Here are the most common options:

Loan Type	Best For	Key Features
Conventional Bank Loans	Established businesses, strong finances	Competitive rates, strict requirements
SBA 504 Loans	Owner-occupied properties, small business	Low down payment, long terms, partial government guarantee
SBA 7(a) Loans	Small businesses, various uses	Flexible use, smaller amounts, government-backed
Commercial Bridge Loans	Short-term needs, property repositioning	Fast funding, higher rates, interest-only
Hard Money Loans	Investors, quick close, poor credit	Asset-based, very high rates, short terms
CMBS Loans	Large properties, investors	Securitized, non-recourse, fixed rates
Construction Loans	Ground-up or major renovation projects	Short-term, converts to permanent financing

Step-by-Step: How to Secure a Commercial Real Estate Loan

1. Define Your Property and Financing Needs

• Identify the type of commercial real estate (office, industrial, retail, warehouse space for rent, etc.) you want to acquire or refinance.

• Determine your loan amount, desired loan terms, and whether you need funds for purchase, renovation, or construction.

2. Prepare Your Financial Documentation

Lenders require extensive documentation, including:

• Business tax returns and financial statements

• Personal financial statements for major owners

• Rent rolls or lease agreements (for investment properties)

• Business plan or project summary

• Property details and commercial real estate appraisal

• Down payment proof (typically 10-30% of the purchase price)

3. Shop for Lenders and Compare Loan Products

• Approach multiple commercial real estate lenders, including banks, credit unions, non-bank lenders, and SBA-approved institutions.

• Compare commercial real estate loan rates, terms, fees, and prepayment penalties.

4. Understand Key Loan Terms

• Interest Rates: Can be fixed or variable. Commercial real estate interest rates are often higher than residential rates.

• Loan-to-Value (LTV): Most lenders finance 65-80% of the property value.

• Amortization and Term: Commercial real estate loans often have 5-20 year terms with longer amortization, sometimes with a balloon payment at the end.

• Debt Service Coverage Ratio (DSCR): Lenders want to see that your property’s income covers the loan payments, typically with a DSCR of 1.25 or higher.

5. Submit Your Loan Application

• Complete the lender’s application and submit all required documents.

• Be prepared for property inspections, commercial real estate appraisals, and environmental assessments.

6. Underwriting and Approval

• The lender will analyze your creditworthiness, property cash flow, and collateral.

• Expect questions about your business, property management experience, and commercial real estate insurance coverage.

7. Closing the Loan

• Review and sign the loan documents.

• Pay closing costs, which may include appraisal fees, legal fees, and origination charges.

• After closing, funds are disbursed and you take ownership or begin your project.

Spotlight: SBA 504 Commercial Real Estate Loans

The SBA 504 loan is a top choice for small businesses looking to purchase or renovate owner-occupied commercial real estate. Key features include:

• Low Down Payment: As little as 10% down, making it accessible for growing businesses.

• Long Amortization: Terms up to 25 years, reducing monthly payments.

• Fixed Interest Rates: Stability for budgeting.

• Eligibility: Must be for owner-occupied properties (at least 51% occupied by the borrower).

SBA 504 loans are structured with a bank providing 50% of the loan, a Certified Development Company (CDC) providing 40%, and the borrower contributing 10%.

Tips for a Smooth Loan Process

• Work with an experienced commercial real estate agent or broker to navigate listings, negotiations, and lender introductions.

• Use a commercial real estate loan calculator to estimate payments and affordability.

• Maintain strong financials and address any credit issues before applying.

• Consider professional guidance from a commercial real estate attorney to review contracts and protect your interests.

Conclusion

Securing a commercial real estate loan is a multi-step process that requires preparation, knowledge, and the right partners. Whether you’re investing in industrial space for rent, searching for commercial real estate for sale, or expanding your business with a new office, understanding your loan options and working with experienced professionals can make all the difference. For personalized advice or to start your loan search, contact our commercial real estate brokerage today.