About Commercial Real Estate Loans

Commercial real estate loans are loans that business owners can use to buy or upgrade commercial properties. The property serves as collateral for the loan. Banks and private lenders offer commercial real estate loans

what is a Commercial Real Estate Loan?



Buying or renovating commercial real estate is an exciting move, marking a big step forward for your small business. But, it can also be stressful, and there’s a lot of money at stake. You need to know the ins and outs of the process before you get too far in over your head.
Unless you can support the project with your own money, you’ll need commercial real estate loans to finance the work. Fortunately, commercial real estate loans terms are long with manageable monthly payments, and have lower interest rates than many other kinds of business loans.

Maximum Loan Amount

$50K - $5M

Loan Term

1 - 5 years

interest rates

Starting at 6.75%

speed

As fast as 3 weeks

How to Qualify For Commercial Real Estate Loans

When you’re out searching for a loan for commercial property, you’ll likely wonder which options are best for your business’s credentials.

Commercial real estate loan requirements—as with any business loan—vary by the lender you’re working with. But since commercial real estate is such a large, capital-intensive investment, lenders look especially closely not just at you, but at the property you want to purchase as well.

Here’s what lenders will consider when you submit an application for a commercial real estate loan:

Most customers who were approved had:

**Based on The Funding Ninjas past customers.

Annual Revenue

Over $180K

Credit Score

640

Time in Business

Over 4 years

Your Credit Score
The Property’s Collateral Value
Time in Business & Management Experience
Debt Service Coverage Ratio
DSCR Example and Formula

How To Apply


Applying for a commercial real estate Loan can be very paperwork-intensive. If you go through a bank, expect the document list to be especially long and detailed. Hard money lenders and crowdfunding platforms don’t have as many commercial real estate loan requirements, but there are still some basic documents you need to have in order.

Here’s some essential paperwork to gather for your commercial real estate loan:

   Documents you need:

Business Owner Information

General Property Information

Personal Financials

Business Financials

Construction or Renovation Phase

Business Tax Returns

Business Debt Schedule

Personal Tax Returns

Business Plan

Types of Commercial Real Estate Loans



Commercial real estate is any kind of property that you use for business purposes. The term could refer to a brick and mortar store, shopping mall, office space, or manufacturing facility. Land or mixed-use properties like apartment buildings are also commercial real estate.

If you have plans to purchase new or existing commercial properties, or to renovate commercial space, you can take out commercial real estate loans to help finance the project. The property itself serves as the collateral for the loan.

Commercial real estate loans definitely aren’t one size fits all. There are several types, varying in terms of loan amounts, eligibility requirements, length of the application process, rates, and fees.

Traditional Commercial Real Estate Loan

A traditional commercial real estate loan comes from a bank. It’s what first comes to mind for most people when they think of commercial real estate financing. Banks normally lend the most amount of money, at the lowest cost. But, they’re also hard to get. Bank commercial real estate loans are typically reserved for the highest credit borrowers and for businesses that have been showing a profit for at least a couple years.


SBA Loans

The SBA has two loan programs that can be used for real estate: the 7(a) and the 504 loan program. The 7(a) program is a general purpose business loan that you can use for many different business reasons, including buying and repairing commercial property. The term is 25 years for real estate, and rates are in the range of 7% to 9.5%. The best parts of the 504 loan are the long terms (20 or 25 years), and some of the lowest fixed rates around (starting 5%).

Bridge Loan

A commercial bridge loan is a short-term commercial loan that lets you quickly buy property or capitalize on an opportunity. When the loan reaches maturity, you either have to pay off the loan in full, or more commonly, refinance into a longer-term loan. These loans “bridge the gap” between identifying property that you want to buy or renovate and finding affordable, longer-term financing. Bridge lenders can be banks or hard money lenders.

Hard Money Loans

Hard money commercial real estate loans are short-term loans from private lenders and investors. Compared to banks, hard money lenders tend to loan smaller loan amounts, and also charge higher interest rates. But in exchange, qualifying for a hard money loan tends to be much easier than qualifying for a bank loan. In fact, many younger small businesses get their first few commercial real estate loans from hard money lenders.

Fees on Commercial Real Estate Loans

Apart from interest rates, fees also impact the cost of your commercial real estate loan. Most commercial real estate loans have fees that you’ll need to pay before you take on the loan.
You have to pay some of these fees during the underwriting process, whereas others you can bundle into the loan.

You pay the application fee when you submit your application, and origination fees usually come out of the top of the loan. Origination fees usually range from 1% to 2% of the total loan amount. Then, there are often property appraisal fees, legal costs, survey fees, and so on. Sometimes, there are also small annual fees.

You should also be aware of any prepayment penalties on your commercial real estate loan You could have a typical prepayment penalty, but there could also be an interest guarantee, defeasance, or lockout restricting you from paying early. In each of these cases, the lender benefits the longer you hold onto your loan, or they mandate a certain level of profit at the outset.

Before committing to your commercial real estate loan, ask the lender to clearly explain any and all fees that will impact your total borrowing cost. This way, you can avoid unpleasant surprises down the line.

How Commercial Real Estate Loans Work: Terms, Loan Amounts, and Rates



Many people assume that commercial real estate loans (also called commercial mortgages) are similar to residential mortgages. But that’s not really true. As you now know, there are many types of commercial real estate loans, each a little bit different. And since commercial property is securing the loan, that affects the terms, eligibility, and other factors.

Now for the nuts and bolts of commercial real estate loans: commercial loan terms, interest rates, and fees.

Commercial Loan Terms and Repayment Schedule
Commercial Real Estate Loans as Balloon Loans
SBA Loans: The Fundamentals
Loan-to-Value (LTV) and After-Repair Value (ARV)
Commercial Real Estate Loan Cost

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