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Commercial Real Estate Loans

Key Takeaways:

  • CRE loans are typically granted to organizations or corporations that own commercial real estate.
  • CRE loans are offered by insurance companies, independent lenders, retirement funds, banks, and other private investors.
  • A 504 loan is available through SBA’s community-based partners and CDCs.
  • Commercial real estate loans are usually more expensive compared to home loans.

A commercial real estate (CRE) loan is a mortgage that is secured by commercial real estate, as opposed to a traditional residential property.

Commercial real estate refers to a property that is utilized for commercial purposes – examples include shops, offices, apartments, and hotels.

A CRE loan is available to small businesses looking to buy, expand or renew their properties. These loans are usually made to corporations, partnerships, trusts, developers, mutual funds, and real estate trusts.

A business entity buys a commercial property, rents space, and then collects rental income from businesses on the property.

The financing is done through a commercial real estate loan for these ventures, which includes the purchase, construction, and development of properties.

How a CRE Loan Works

Just like residential real estate, lenders, banks, pension funds, private investors, insurance companies, and other entities such as the US Small Business Administration’s 504 loan program, are actively involved in commercial real estate loans.

💡 Tip: Compare the best commercial real estate loans here.

Like home lenders, commercial lenders also take on a level of risk, which is why they have different terms that they offer to borrowers.

The most popular home loan is a fixed-rate, 30-year mortgage. Loans for commercial real estate tend to be shorter, with terms ranging from five years (or less) to 20 years. The amortization period is often also longer than the term of the loan.

Example:

  • A lender can provide a commercial real estate loan for seven years with a 30-year amortization.
  • The borrower pays monthly intallments during the seven year term.

  • The lender determines the monthly payments as if the loan was repaid over a 30-year period. This is then followed by a last “balloon” payment of the remaining loan balance.

When applying for a commercial real estate loan, lenders consider:

  • The nature of the collateral (property purchased).
  • The entity’s creditworthiness (or that of the principals/owners), which may require financial statements and tax returns for the last three to five years.
  • The business’s loan-to-value and debt service coverage ratios.


Commercial real estate loans are usually more expensive compare to home loans. Advances typically range between 20% and 30% of the original price.

Commercial Real Estate Loan Rates

Commercial real estate loan rates are steeper as well: around 10-20%.

Loans backed by the Small Business Administration (SBA) are usually among the cheapest and ranged from 7.75% to 10.25% in January 2019.

Note: CRE loans are aimed at financing real estate that is specifically used for business purposes.

Types of Commercial Real Estate Loans

These are the most common CRE loan types:

  • Fixed loans are the first commercial real estate mortgage loans. An indefinite loan must have amortization and a minimum period of five years.
  • SBA loans are made by traditional and non-traditional lenders but are guaranteed by the SBA. There are several different SBA loans that are designed for different types of borrowers, the most popular of which is the 7 (a) loan.
  • Bridging loans provide a short-term first commercial mortgage loan, typically for a period of six months to three years. Bridging loans are usually obtained while the borrower waits for long-term financing.

SBA 504 Loans

The SBA 504 loan program provides fixed-rate, long-term financing for commercial entities to the value of up to $5 million, to promote job creation and business growth.

SBA commercial real estate loan programs are available through SBA’s community-based partners and Certified Development Companies (CDCs).

A Certified Development Company is a non-profit organization that promotes job creation and economic development with 504 loans.

You are eligible for a 504 loan if your business:

  • Operates as a for-profit company in the United States.
  • Has a net worth of less than $15 million.
  • Has an average net income of less than $5 million for the two years preceding your application, and after federal income taxes.


To apply for an SBA commercial real estate loan, find a CDC near you to ensure you are dealing with an approved lender.

Prepare your 504 loan authorization package with the available 504 Authorization File Library to see what documents you’ll need to apply for a 504 CDC loan.

Commercial Bridging Loans

Bridging loans offer quick financing that is used to fill the gap until long-term financing for commercial real estate is secured.

A business owner, for example, can use it to compete with bidders offering the entire property and then refinance the long-term loan after the property is secured.

In general, most bridging loans are very short-lived (often six months to three years) and must be repaid in full at maturity.

The interest rate on bridging loans is typically several percentage points higher than the current market rate.

Commercial bridging loans are more readily available from alternative lenders than banks and credit unions.

Note: As shorter terms increase the lender’s risk, it can be difficult to qualify for a bridging loan.

Business owners typically need strong credit and a low debt-to-income ratio to be approved.

Advances typically range from 10% to 20% and often close faster than conventional real estate loans.

Find the best commercial real estate loans here.

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    Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

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    Last Updated: May 17, 2022

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