Commercial Real Estate Loans: Types, Rates, & Requirements

Many small business owners will eventually get to the point where they need to build, purchase, or update their commercial space. Because most businesses don’t have the revenue to pay out of pocket, a commercial real estate loan is essential.

Read on to learn about your options, comparing loans, and finding the money you need with a commercial real estate loan with the best rates and terms.

Types Of Commercial Real Estate Loans

Common types of commercial real estate loans include SBA CDC/504 loans, SBA 7(a) loans, commercial bank mortgages, and commercial bridge loans.

SBA CDC/504 Loans For Commercial Real Estate

The Small Business Administration (SBA) is known for offering low-interest, long-term loans to business owners.

For purchasing or improving commercial real estate, few options are as competitive as the SBA CDC/504 loan program.

How Do CDC/504 Loans Work?

SBA loans are issued through intermediary lenders, such as SBA-approved banks and nonprofit organizations. Because a portion of the loan is guaranteed by the government, lenders are more willing to work with small businesses.

CDC/504 loans are structured differently from most loans because they involve two lenders. A Certified Development Company (CDC), which is a nonprofit organization regulated by the SBA, provides 40% of the total project cost. A bank or credit union provides 50%, and the borrower contributes the remaining 10%.

Loan proceeds can be used to purchase commercial real estate, buy land or make land improvements, construct new facilities, renovate existing properties, or purchase long-term equipment. In some cases, debt related to these projects may also be refinanced.

SBA CDC/504 Loan Terms, Rates & Down Payment

The maximum loan amount for the CDC portion of the loan is $5.5 million. Interest rates are fixed and vary based on market conditions, typically tied to Treasury yields. It’s important to note that these rates apply only to the 40% portion funded by the CDC.

Repayment terms are typically 10 years for equipment and 20 years for real estate. Unlike many other commercial real estate loans, CDC/504 loans do not include balloon payments.

The required down payment is usually 10% of the project cost but can increase to as much as 30% depending on the borrower and project. In most cases, the collateral for the loan is the project itself.

A personal guarantee is required from all owners with at least a 20% stake in the business.

SBA CDC/504 Loan Borrower Requirements

To qualify, businesses must meet the SBA’s definition of a small business and meet the following criteria:

• Net worth must not exceed $15 million
• Average net income must be $5 million or less after federal taxes
• Employee limits vary by industry
• Business must be for-profit and not engaged in passive or illegal activities
• The business must occupy at least 51% of the property

In addition, lenders will evaluate creditworthiness. While there is no official minimum credit score, a score of 680 or higher is typically recommended. Applicants should not have recent bankruptcies, foreclosures, or defaults on government-backed loans.

Is An SBA CDC/504 Loan Right For Your Business?

An SBA CDC/504 loan is a strong option for businesses looking to purchase, construct, or improve commercial property. It offers low down payments, long repayment terms, and competitive fixed rates.

However, the application and approval process can take time. Businesses that need fast funding or prefer working with a single lender may want to consider alternative financing options.

SBA 7(a) Loans For Commercial Real Estate

The CDC/504 loan isn’t the only SBA option for financing commercial real estate. The SBA 7(a) loan program is the agency’s most popular offering and can also be used to purchase, refinance, or improve commercial property.

How Do SBA 7(a) Loans Work?

SBA 7(a) loans are issued through approved lenders, such as banks and credit unions, with a portion of the loan guaranteed by the SBA. This reduces risk for the lender and helps qualified small businesses access financing with competitive terms.

Unlike CDC/504 loans, which are specifically designed for real estate and equipment, 7(a) loans are more flexible. Funds can be used for a wide range of business purposes, including purchasing commercial real estate, refinancing existing debt, buying equipment, acquiring a business, or covering working capital.

SBA 7(a) Loan Terms, Rates & Down Payments

SBA 7(a) loans offer up to $5 million in funding. Interest rates are typically variable and based on the prime rate plus a margin set by the lender, with SBA-imposed caps.

For commercial real estate, repayment terms can extend up to 25 years. However, some loans may include balloon payments or shorter effective terms depending on the lender and structure.

Down payments typically range from 10% to 20%, though requirements vary based on the lender and borrower profile.

Collateral is often required for larger loans, and lenders may secure the loan with business or personal assets. A personal guarantee is required from owners with a 20% or greater stake in the business.

SBA 7(a) Loan Borrower Requirements

To qualify, businesses must meet SBA size standards and demonstrate the ability to repay the loan.

In addition to creditworthiness, lenders evaluate cash flow and may consider metrics such as the debt service coverage ratio (DSCR) to determine whether the business can support the loan.

While there is no official minimum credit score, a score of 680 or higher is typically recommended. Applicants should not have recent bankruptcies, foreclosures, or defaults on government-backed loans.

For real estate loans, the business is generally required to occupy at least 51% of the property.

Is An SBA 7(a) Loan Right For Your Business?

SBA 7(a) loans are one of the most flexible financing options available, making them a strong choice for businesses that need funding for both real estate and other expenses.

However, the application and approval process can take several weeks or longer. Businesses that need fast funding or have lower credit scores may need to consider alternative options.

Bank Commercial Mortgages

Traditional banks and credit unions offer commercial mortgages that can be used to purchase or refinance business property.

How Do Bank Commercial Mortgages Work?

Commercial mortgages are similar to residential home loans in that a lender finances a portion of a property’s value, and the borrower repays the loan over time with interest.

However, commercial mortgages are typically more difficult to qualify for. Unlike many residential loans, they are not government-backed, which increases risk for lenders and leads to stricter approval requirements.

With a commercial mortgage, the lender evaluates both the borrower and the property itself. Loan approval is based not only on creditworthiness but also on the income-generating potential of the property.

Bank Commercial Mortgage Terms, Rates & Down Payments

Interest rates vary by lender and borrower profile but are typically competitive for well-qualified applicants.

Commercial mortgages are usually structured with loan-to-value (LTV) ratios of 65% to 85%, requiring a down payment of 15% to 35%.

Repayment terms can extend up to 30 years. However, many commercial mortgages are amortized over 20 to 30 years but have shorter terms — often 5 to 10 years — requiring a refinance or payoff at maturity. These loans may also include balloon payments at the end of the term.

There is no set maximum loan amount, as approval is based on the borrower’s financial profile and the property’s value.

Bank Commercial Mortgage Borrower Requirements

Qualification requirements are typically more stringent than other types of commercial real estate financing.

In addition to strong credit — often 700 or higher — lenders evaluate cash flow and use metrics such as the debt service coverage ratio (DSCR) to determine whether the business can support the loan. Most lenders look for a DSCR of approximately 1.2 to 1.3 or higher.

Lenders may also require collateral beyond the property itself and often require a personal guarantee.

Is A Bank Commercial Mortgage Right For Your Business?

Bank commercial mortgages are a strong option for established businesses seeking long-term financing with competitive rates, particularly for larger loan amounts that exceed SBA limits.

However, the application and approval process can take several weeks or longer, and qualification requirements are typically stricter. Businesses that need fast funding, have lower credit scores, or lack sufficient cash flow may need to consider alternative financing options.

Commercial Bridge Loans

While most commercial real estate loans are designed for long-term financing, some situations require fast, short-term funding. In these cases, a commercial bridge loan can help fill the gap.

How Do Commercial Bridge Loans Work?

Bridge loans are short-term financing solutions designed to help businesses move quickly on time-sensitive opportunities, such as purchasing or renovating commercial property.

Traditional loans, including SBA loans and bank mortgages, can take weeks or months to fund. Bridge loans, on the other hand, can often be approved and funded in a matter of days.

These loans are typically structured as interest-only payments over a short term — often 6 to 12 months — with a large balloon payment due at the end. Borrowers usually repay the loan by selling the property or refinancing into a long-term loan.

Because of this structure, lenders typically require a clear exit strategy before approving a bridge loan.

Commercial Bridge Loan Terms, Rates & Down Payments

Loan amounts vary widely based on the lender and the project, with approval largely based on the value and potential of the property.

Most lenders offer loan-to-value (LTV) ratios between 65% and 80%, though some may go higher depending on the deal and borrower qualifications.

Interest rates are higher than traditional commercial real estate loans, typically starting around 8% and often exceeding 12% depending on the lender and risk profile. Some lenders may also charge origination fees or points, which can increase the overall cost.

Loan terms are short, commonly ranging from 6 to 12 months, although some lenders may offer terms up to 24 months.

Commercial Bridge Loan Borrower Requirements

Bridge loans generally have more flexible qualification requirements than traditional financing.

While credit scores of 650 or higher are often preferred, lenders place greater emphasis on the property’s value and the borrower’s exit strategy. In some cases, lenders may evaluate metrics like DSCR, but approval is typically more asset-based than cash flow-based.

Borrowers must demonstrate a clear plan to repay the loan, whether through refinancing, selling the property, or another defined strategy.

Is A Commercial Bridge Loan Right For Your Business?

Commercial bridge loans are best suited for businesses that need fast access to capital and have a clear plan for short-term repayment.

They are commonly used for time-sensitive real estate purchases, renovations, or transitional financing situations.

However, because of their higher costs and short repayment terms, bridge loans are not a good fit for long-term financing needs.

Where To Find Commercial Real Estate Loans

Commercial real estate loans are available through a variety of lenders, and the right option depends on your needs, timeline, and qualifications.

• Banks and credit unions: Best for traditional commercial mortgages and borrowers with strong credit and financials
• SBA-approved lenders: Offer SBA 7(a) and CDC/504 loans with competitive rates and longer terms
• Online lenders and marketplaces: Provide faster access to funding, including bridge loans and alternative financing options

If you already have a relationship with a financial institution, that’s often a good place to start. Comparing multiple lenders can also help you find the best rates and terms.

How To Apply For A Commercial Real Estate Loan

The application process varies by loan type, but most lenders require similar information to evaluate your eligibility.

Common steps include:

1. Submit an application with details about your business and the property
2. Provide financial documentation, such as tax returns, financial statements, and cash flow reports
3. Underwriting and review, where the lender evaluates your credit, finances, and the property itself
4. Approval and closing, where final terms are set and funds are disbursed

Depending on the loan type, this process can take anywhere from a few days (for bridge loans) to several weeks or months (for SBA and bank loans).

What You’ll Need To Apply

While requirements vary, most lenders will ask for:

• Personal and business tax returns
• Personal and business financial statements
• Profit and loss statements
• Bank statements
• Details about the property being purchased or refinanced
• Business plan or projections (in some cases)

Having these documents ready in advance can help speed up the approval process.

The Bottom Line On Commercial Real Estate Loans

Commercial real estate loans can take time and require thorough documentation, but they offer some of the most competitive rates and longest repayment terms available to small businesses.

By understanding your options, comparing lenders, and preparing your financials in advance, you can position your business for a smoother approval process and better loan terms.

Check out our list of the best banks for business loans to start comparing your options.