10 Types of Commercial Real Estate Loans
Looking to finance a commercial property? Here’s a breakdown of 10 key types of loans tailored for different needs, from purchasing office buildings to renovating multifamily properties. Each loan type has unique terms, requirements, and purposes. Here's what you need to know:
- Standard Commercial Mortgages: Fixed terms, up to 75% LTV, and quick closings (14–21 days).
- SBA 7(a) Loans: Government-backed loans for small businesses with flexible terms.
- SBA 504 Loans: Ideal for buying or renovating owner-occupied properties with low down payments (10%).
- Bridge Loans: Short-term funding for quick purchases or refinancing, with fast approval (5–7 days).
- Construction Loans: Finance new builds with phased disbursements and interest-only payments.
- CMBS Loans: Long-term, non-recourse loans for stabilized properties, with competitive rates.
- Private Money Loans: Fast funding for time-sensitive projects, focusing on property value over borrower documentation.
- Secondary Lien Financing: Access additional funds without refinancing the primary mortgage.
- Fannie Mae/Freddie Mac Loans: Specialized for multifamily properties with favorable terms.
- Business Credit Lines: Flexible revolving funds for property upgrades or unexpected costs.
Each loan type serves specific needs, whether you're a seasoned investor or a first-time borrower. Compare options based on interest rates, repayment terms, and your financial goals.
Quick Comparison Table
| Loan Type | Best For | Interest Rates | Key Features |
|---|---|---|---|
| Standard Commercial Loans | Buying/refinancing properties | Starting at 9.99% | Fixed terms, up to 75% LTV |
| SBA 7(a) Loans | Small business investments | Varies | Government-backed, flexible use |
| SBA 504 Loans | Owner-occupied properties | Below market rates | 10% down, up to 25-year terms |
| Bridge Loans | Short-term funding | 6.5%–12% | Fast approval, interest-only |
| Construction Loans | New builds/renovations | Starting at 10.49% | Phased disbursement, interest-only |
| CMBS Loans | Stabilized properties | 4.5%–6.5% | Non-recourse, long amortization |
| Private Money Loans | Fast funding, unique properties | 5.75%–10.49% | Minimal paperwork, quick closing |
| Secondary Lien Financing | Additional working capital | 7.99%–12.99% | Keeps primary mortgage intact |
| Fannie Mae/Freddie Mac | Multifamily properties | Competitive rates | Long amortization, strict criteria |
| Business Credit Lines | Flexible financing needs | Variable | Revolving funds, interest-only |
Choose the right loan by considering your timeline, financial situation, and property goals. Keep reading for a deeper dive into each option.
5 Best Commercial Real Estate Loans
1. Standard Commercial Mortgages
Standard commercial mortgages are one of the most common options for financing commercial properties.
Loan Purpose
These loans are designed to help with purchasing or refinancing properties such as office buildings, retail spaces, and multi-family housing units.
Key Features and Terms
Standard commercial mortgages come with structured terms, making them predictable for borrowers. For instance, LoanGuys.com offers loans with a 30-year fixed rate starting at 9.99%, closing times as fast as 14–21 business days, and loan-to-value (LTV) ratios of up to 75%.
| Feature | Details |
|---|---|
| Interest Rate | Starting at 9.99% |
| Loan Term | Up to 30 years fixed |
| Closing Time | 14–21 business days |
| Loan-to-Value (LTV) | Up to 75% |
Recent examples highlight the efficiency of these loans. A $611,250 loan for an $815,000 property in Riverside closed in just 14 days. Similarly, a $1,087,500 loan for a $1,550,000 property in Jupiter was finalized in only 10 days.
Borrower Requirements
LoanGuys.com simplifies the qualification process by focusing on the property’s income potential rather than traditional income documentation like tax returns, W2s, or paystubs. This streamlined approach makes it easier for borrowers to secure funding.
Pros and Cons
| Pros | Cons |
|---|---|
| 30-year fixed terms | Higher interest rates compared to some options |
| Quick closing (14–21 days) | Requires a substantial down payment |
| Income based on property performance | Property must generate enough income |
| Available nationwide | May require strong credit history |
This model allows for faster closings and broader accessibility. With over $1 billion deployed across all 50 states, LoanGuys.com has shown how effective these mortgage solutions can be.
2. SBA 7(a) Loans
SBA 7(a) loans are government-backed loans designed to help small businesses purchase, refinance, or renovate commercial properties. By offering a partial guarantee through the Small Business Administration, these loans lower the risk for lenders and make financing more accessible for qualifying businesses.
Borrower Requirements
To qualify, borrowers must meet the SBA's definition of a small business. This includes being a for-profit entity, adhering to size standards, and having a stable financial history. Lenders will evaluate factors like operating history, creditworthiness, and overall financial performance. While specific requirements may differ from one lender to another, the program's structure provides clear guidelines, making it a more accessible option than many traditional loans.
SBA 7(a) loans are a practical choice for small businesses looking to invest in commercial real estate.
3. SBA 504 Loans
SBA 504 loans provide long-term, fixed-rate financing to help small businesses purchase major assets like commercial real estate and equipment. These loans involve a partnership between a Certified Development Company (CDC) and a conventional lender.
Loan Purpose
This program can be used for several investment activities, such as:
- Buying existing buildings
- Funding new construction projects
- Purchasing land and making improvements
- Renovating current facilities
- Financing long-term equipment tied to the property
Key Features and Terms
SBA 504 loans typically involve three contributors:
- 50% from a conventional lender (first mortgage)
- 40% from a CDC/SBA (second mortgage)
- 10% minimum down payment from the borrower
The CDC portion of the loan includes:
- Fixed interest rates, often lower than market averages
- Terms of up to 25 years for real estate
- Terms of up to 10 years for equipment
- Loan amounts ranging from $125,000 to $5.5 million
Borrower Requirements
To qualify, borrowers must:
- Operate as a for-profit business
- Meet SBA size standards (tangible net worth under $15 million and average net income under $5 million after taxes over the last two years)
- Show repayment ability based on projected cash flow
- For existing buildings, occupy at least 51% of the space (60% for new construction)
Pros and Cons
| Advantages | Disadvantages |
|---|---|
| Low down payment (10%) compared to traditional loans | Application process can be complicated |
| Fixed interest rates | Approval process takes longer |
| Extended repayment terms | Restricted to owner-occupied properties |
| Lower monthly payments | Prepayment penalties may apply |
| Personal guarantee required |
SBA 504 loans are a great option for small businesses looking to invest in real estate or equipment while keeping upfront costs low and preserving cash flow. However, the process can be time-intensive and comes with specific requirements.
4. Short-Term Bridge Financing
Short-term bridge loans provide temporary funding to address immediate financial needs while waiting for long-term financing to come through.
Loan Purpose
These loans are often used for quick property purchases, time-sensitive investments, renovations, refinancing before maturity, or covering carrying costs during a property's stabilization period.
Key Features and Terms
Here are some typical features of bridge loans:
- Loan terms range from 6 months to 3 years.
- Interest rates fall between 6.5% and 12%.
- Loan-to-Value (LTV) ratios can go up to 75%.
- Payments are usually interest-only, with a balloon payment due at the end.
- Borrowers often have flexible prepayment options.
These terms are designed to make the approval process quicker and more manageable for borrowers.
Borrower Requirements
Lenders like LoanGuys.com simplify the process by using a no-documentation approach. Instead of relying on tax returns, W2s, or paystubs, they focus on the property's income potential.
Pros and Cons
| Pros | Cons |
|---|---|
| Fast funding (within 5–7 days) | Higher interest rates |
| Lenient qualification requirements | Short repayment periods |
| Minimal paperwork needed | Higher origination fees |
| Interest-only payments | Requires a clear exit strategy |
| Approval based on property income | Approval depends on property value |
Specialized lenders such as LoanGuys.com make these loans accessible, offering over $100 million in available capital and the ability to close deals within a week.
5. Property Construction Loans
Property construction loans are designed to finance new builds or major upgrades of commercial properties. They cover costs like materials and labor throughout the construction process.
Loan Purpose
These loans can be used for various types of projects, including:
- Building new commercial properties from the ground up
- Expanding or renovating existing structures
- Rehabilitating older properties
- Developing mixed-use spaces
Key Features and Terms
Funds from construction loans are typically released in phases, based on a draw schedule aligned with project milestones. Here are the main features:
- Interest rates starting at 10.49% for construction and rehab projects
- Loan-to-value ratios of up to 75% of the total project cost
- Loan terms ranging from 12 to 24 months
- Draw schedules based on construction progress
- Interest-only payments during the construction phase
Specialized lenders like LoanGuys.com are known for their efficient loan processing and quick closings, helping keep projects on track.
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6. CMBS Financing Options
CMBS loans bundle commercial mortgages into fixed-income securities, offering long-term funding with fixed interest rates.
Loan Purpose
CMBS loans are commonly used for:
- Buying stabilized commercial properties
- Refinancing existing real estate debt
- Financing multiple properties within a portfolio
- Funding large-scale commercial projects
Key Features and Terms
Here’s what you can expect with CMBS loans:
- Loan amounts: $2 million to over $100 million
- Fixed interest rates: 4.5%–6.5%
- Terms: 5, 7, or 10 years with 25-30 year amortization schedules
- Loan-to-value (LTV) ratios: Up to 75%
- Non-recourse financing with standard carve-outs
- Assumable loans for qualified buyers
These terms make CMBS loans an attractive option for certain borrowers, but specific requirements must be met.
Borrower Requirements
To qualify for CMBS financing, borrowers typically need:
- A Debt Service Coverage Ratio (DSCR) of at least 1.25x
- A credit score of 680 or higher
- Properties with occupancy rates above 90%
- Stabilized properties with steady cash flow
- Experience in professional property management
- A net worth equal to or exceeding the loan amount
Pros and Cons
| Advantages | Disadvantages |
|---|---|
| Competitive interest rates compared to traditional loans | Prepayment terms can be complex, often involving yield maintenance |
| Non-recourse structure for added protection | Limited flexibility for loan adjustments |
| Higher leverage options | Extensive documentation requirements |
| Longer amortization periods | Multiple layers of servicing can complicate processes |
| No balloon payments during the loan term | Closing costs tend to be higher |
CMBS loans are ideal for seasoned commercial property investors with stable assets that generate reliable income. They are particularly suited for office buildings, retail centers, industrial properties, and multi-family complexes valued at $2 million or more.
7. Private Money Loans
Private money loans, often called hard money loans, provide a financing option for commercial real estate investors who need funds quickly or don't meet the strict requirements of traditional bank loans. Similar to bridge loans, these loans prioritize the value of the property over the borrower's financial documentation, making them ideal for time-sensitive situations.
Loan Purpose
Private money loans are commonly used for:
- Quick property purchases
- Temporary financing until long-term loans are secured
- Fix-and-flip projects or property renovations
- Investments requiring fast action
Key Features and Terms
These loans typically include:
- Loan amounts ranging from $200,000 to over $1.5 million
- Interest rates between 5.75% and 10.49%
- Loan terms lasting 12–24 months
- Loan-to-value (LTV) ratios up to 75% for commercial properties
- Fast closings within 5–7 days, often under two weeks, with no income verification required
Borrower Requirements
Private lenders focus on the property itself and the borrower's strategy for repayment. They assess:
- The property's value and condition
- The feasibility of the borrower's exit strategy
- Down payment ability
- Basic credit qualifications
- The property's potential to generate cash flow
Pros and Cons
| Advantages | Disadvantages |
|---|---|
| Fast approval and funding (5–14 days) | Higher interest rates (5.75%–10.49%) |
| Flexible qualification requirements | Shorter loan terms |
| No income verification needed | Larger down payments required |
| Works for unique or complex properties | Requires a solid exit strategy |
Private money loans stand out for their speed and adaptability, making them an excellent option for investors who need quick funding or are dealing with properties or situations that don't fit traditional lending models. For instance, lenders like LoanGuys.com have already financed over $1 billion in real estate projects, showcasing the importance of this financing method in the commercial real estate world.
8. Secondary Lien Financing
Secondary lien financing, often called second mortgages, provides extra funds without requiring a refinance of the primary mortgage. This creates a second lien on the property, which is ranked below the primary mortgage in terms of repayment priority.
Loan Purpose
Secondary lien financing is commonly used in commercial real estate for:
- Gaining additional working capital to grow a business
- Funding property upgrades or renovations
- Consolidating existing debts
- Covering unexpected financial needs
- Investing in new business opportunities
These loans differ from primary mortgages due to their subordinate position and specific terms.
Key Features and Terms
Here’s what you can typically expect with secondary lien financing:
- Loan amounts reaching up to 80% combined loan-to-value (CLTV)
- Interest rates ranging between 7.99% and 12.99%
- Loan terms lasting 5 to 15 years
- Monthly payment options, including interest-only plans
- Quick closing timelines, often between 15 and 30 days
Borrower Requirements
To qualify for secondary lien financing, borrowers generally need to meet the following criteria:
- A credit score of at least 650
- Ownership of the property for a minimum of 12 months
- Current on payments for the first mortgage
- Demonstrated property cash flow
- Combined loan-to-value (CLTV) ratio of up to 80%
- Debt-service coverage ratio (DSCR) of 1.25 or higher
Pros and Cons
| Advantages | Disadvantages |
|---|---|
| Keeps the terms of the first mortgage intact | Higher interest rates compared to primary mortgages |
| Provides extra funds without refinancing | Adds to monthly debt payments |
| Approval process is faster than for primary loans | Missed payments could lead to foreclosure |
| Avoids disrupting relationships with existing lenders | Loan amounts are smaller due to the secondary lien position |
| Flexible use for business needs | May require approval from the primary lender |
Secondary lien financing requires careful evaluation of total debt and income coverage. The higher interest rates reflect the added risk for lenders since they are second in line for repayment. However, for businesses looking to access additional funds while keeping the favorable terms of their primary mortgage, this can be a practical option.
9. Fannie Mae and Freddie Mac Apartment Loans
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that provide loan programs specifically for apartment buildings. These loans are designed to help with purchasing, refinancing, or improving stabilized multifamily properties.
Loan Purpose
These loans can be used for:
- Buying apartment buildings
- Refinancing existing multifamily properties
- Renovating properties to increase their value
Key Features and Terms
These loans come with a range of appealing terms:
- Loan amounts tied to the property’s value
- Competitive interest rates influenced by market trends
- Flexible repayment terms with longer amortization periods
- Conservative loan-to-value and debt service coverage requirements
- Prepayment options that cater to different investment goals
However, borrowers must meet specific financial criteria to qualify.
Borrower Requirements
To qualify, borrowers need to:
- Show a strong credit history and financial stability
- Have enough liquidity to cover mortgage payments
- Demonstrate a net worth that supports the investment
- Prove experience managing multifamily properties
- Ensure the property has stable occupancy and is in good condition
Pros and Cons
Advantages:
- Competitive interest rates and favorable loan terms
- Longer amortization periods that reduce payment burdens
- Options for non-recourse loans and flexible prepayment terms
Disadvantages:
- High qualification standards and extensive paperwork
- Slower approval process compared to other financing options
- Loans restricted to multifamily properties
These loans are ideal for investors focused on stabilized multifamily properties, offering appealing terms to those who meet the qualifications.
10. Business Credit Lines
Business credit lines offer a revolving source of funds for commercial real estate investors, giving them access to money when they need it. Unlike traditional loans, these lines of credit allow borrowers to pull funds as needed, making them ideal for handling property upgrades, unexpected costs, or time-sensitive opportunities.
Loan Purpose
Business credit lines can cover a range of needs, such as:
- Funding property upgrades or renovations
- Paying for emergency repairs or maintenance
- Acting as short-term financing for property purchases
- Covering day-to-day operating expenses
- Managing cash flow during seasonal fluctuations
Key Features and Terms
Here’s what you can expect with a business credit line:
- Interest rates that adjust based on benchmark rates
- Credit limits tailored to your financial situation
- A specific draw period, often with renewal options
- Flexible repayment, usually with interest-only payments on what you borrow
- Collateral requirements, which may include business assets or real estate
Borrower Requirements
To qualify for a business credit line, lenders typically look for:
- A solid credit score and history
- A business with several years of operation
- Consistent, verifiable annual revenue
- A strong ability to manage debt, shown by a healthy debt-service ratio
- A financial record free from major recent disruptions
This type of financing can be a valuable tool, complementing other funding options for commercial real estate projects.
Conclusion
Understanding commercial real estate loans requires aligning your goals, financial situation, and property needs. Each loan type serves a specific purpose - whether it's a traditional commercial mortgage for established businesses or bridge financing for time-sensitive deals. These considerations will help you navigate the options discussed earlier.
When choosing a commercial real estate loan, consider these key factors:
-
Loan Purpose and Timeline
Think about how you plan to use the property and your investment timeframe. Long-term investments might be best suited for conventional mortgages or SBA loans. On the other hand, short-term projects, like property flips, may align better with bridge loans or private money financing. -
Financial Requirements
Lenders have varying qualification standards. Traditional banks typically require extensive documentation, while alternative lenders may offer a simpler process. Matching your financial needs with the right lender can make all the difference. -
Cost Considerations
Compare the overall cost of financing, including interest rates (e.g., 5.75% for long-term rental loans and up to 10.49% for fix-and-flip loans), closing costs, prepayment penalties, and loan terms with their amortization schedules.
Partnering with knowledgeable lenders can simplify the process. LoanGuys.com, for example, is known for professional, efficient service. Established lending partners like this can make a big difference when securing financing.
The commercial real estate market is evolving, and alternative lenders such as LoanGuys.com are stepping up. With over $1 billion in funded real estate projects, they provide flexible solutions, especially for investors needing quick closings or facing unique challenges.
