What Are Commercial Real Estate Loans?



commercial real estate loans

Commercial real estate loans (CRE loans) are a popular way for businesses to finance the purchase, renovation, or expansion of a commercial property such as these Top US Real Estate Franchises. We’ll discuss some pros and cons of commercial loans, the best lenders, loan requirements, and more. Let’s get started!



What Is a Commercial Real Estate Loan?

Commercial real estate loans are mortgages used to purchase, refinance, or renovate commercial properties. The terms and conditions of these loans can vary substantially. Commercial real estate financing can be obtained through many sources, including traditional banks, credit unions, life insurance companies, and private investors.

Is a Commercial Real Estate Loan Right for Your Small Business?

CRE loans can be great for small business owners, however, it’s important to understand the pros and cons of taking out such a loan before making any decisions. The Small Business Administration (SBA) offers helpful information on its website about what to consider when applying for a commercial loan. Before applying for a loan, discover how These 5 Real Estate Investment Mistakes Could Kill Your Business! Learn Why.

Pros of Commercial Loans for Real Estate

Commercial real estate loans can provide many benefits for business owners, including the following five:

  • Flexibility in repayment terms – You can typically choose from a variety of repayment options, including interest-only payments, balloon payments, and more.
  • Low-interest – Commercial real estate loans often come with lower interest rates than other types of loans, such as business credit cards or personal loans for better monthly payments.
  • Potential tax benefits – The interest paid on a commercial loan is often tax-deductible. This can be a valuable perk, especially for businesses that are struggling to make ends meet.
  • Better loan terms – You can potentially get higher loan amounts and longer repayment terms than other types of loans. This can give you the financial breathing room you need to grow your commercial property business.
  • Builds business credit – Making timely payments on a CRE loan can help you build business credit, which can be helpful if you ever need to apply for a business loan in the future.

Cons of Commercial Property Loans

There are also some potential drawbacks to taking out a CRE loan, which include the following four reasons:

  • Fees and closing costs – Commercial real estate loans often come with a variety of fees and closing costs that can add up. Hard money loans, for example, can be more expensive than traditional loans.
  • Loan minimums – Some lenders have minimum loan amounts, which can range from $100,000 to $1 million or more. Down payment requirements can also be higher, typically 20% to 30% of the property’s purchase price.
  • Higher interest & DSCR – Interest rates on commercial loans are often higher than those for residential loans. Your debt service coverage ratio (DSCR) will be considered also, which measures your ability to repay a loan using existing cash flow.

Best Commercial Real Estate Lenders in 2022

Here’s a list of the best commercial lenders to get SBA loans in 2022:

1. U.S. Bank

U.S. Bank offers different types of commercial loans with longer terms of up to 25 years but has higher credit requirements than other lenders on this list.

2. KeyBank

KeyBank Real Estate Capital provides financing for both commercial and multifamily properties through various solutions such as commercial-backed mortgage security markets.

3. Wells Fargo

Wells Fargo is a great choice for borrowers looking for a conventional bank mortgage loan with funding of up to $1 million for five and 10 years, and up to 20 years for bigger projects.

4. CBRE

With over 14,000 loans, CBRE Loan Services provides expert loan services tailored to their client’s specific needs. They have offices in the US, Europe, and the Asia Pacific.

5. JPMorgan Chase

JPMorgan offers commercial loans up to $15 million. However, for multifamily projects, they will loan up to $25 million.

6. Walker & Dunlop

With 39 nationwide offices and over 1,300 employees, Walker & Dunlop has closed over $260 billion of business since 2011. They offer many financing options available.

7. SmartBiz

SmartBiz takes the complicated and long process of applying for SBA loans and made them more manageable. Financing on an SBA loan of up to $5 million and 25 years with a loan-to-value of up to 90% is available.

8. Northeast Bank

Northeast Bank offers loans, including SBA and USDA loans, in many industries such as hotels, gas stations, and self-storage.

9. Berkadia

Berkadia crafts long-term solutions customized specifically around what’s best suited to your unique situation.

Commercial Real Estate Loan Requirements

Here are some key requirements for securing a commercial real estate loan:

  • Strong credit score: In order to qualify for a CRE loan, you’ll need a strong credit score. Lenders will typically look for a credit score of 680 or higher.
  • Solid business plan: Lenders will also want to see a well-thought-out business plan. This should include information on your expected revenue, expenses, and how you plan to use the loan proceeds.
  • Collateral: Most lenders will require some form of collateral, such as a mortgage on your property or a personal guarantee.
  • Down payment: You’ll typically need to make a down payment of 20-30% on a CRE loan.
  • An experienced team: It’s also important to have an experienced team in place, including a real estate agent, lawyer, and accountant.

How to Get a Commercial Real Estate Loan

With a little preparation and knowledge, you’ll be well on your way to getting the financing you need. Follow these steps:

  1. Determine how much you need to borrow: This will help you narrow down your list of potential lenders.
  2. Compare interest rates and terms: Business credit scores, collateral, and down payments will all play a role in the interest rate you’re offered.
  3. Choose the right lender: Loan to value ratio, fees, and customer service should all be considered when choosing a lender.
  4. Get your paperwork in order: This includes your financial statements, business plan, and other documentation the lender will require.
  5. Negotiate the loan terms: Once you’ve chosen a lender, it’s time to negotiate the loan terms.
  6. Close the loan: Once you’ve reached an agreement with the lender, it’s time to close on the loan and get started on your business expansion.

Do Commercial Banks Offer Real Estate Loans?

Yes, commercial banks offer real estate loans. Commercial banks typically have more experience with real estate loans than other lenders, and they may be more willing to work with you on the terms of the loan.

What Credit Score Is Needed for a Commercial Loan?

In order to qualify for a commercial real estate loan, you’ll typically need a credit score of 680 or higher. Lenders want to make sure you’re a safe bet before lending you money.

What is a Good Interest Rate on Commercial Loans for Real Estate?

Commercial real estate loans currently have an interest rate of 2.2% to 18%. Interest rates on these loans are determined by the borrower’s credit score, the amount of money being borrowed, and the value of the property being used as collateral for the loan.

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Kevin Ocasio Kevin Ocasio is a staff writer for Small Business Trends, United States Marine Corps veteran, serial entrepreneur, and certified digital marketer, who writes for various online publications including his own Grind Boss blog.

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