CRE Loans

If you’re a business owner or real estate investor, you might need to buy or renovate property—that’s where a commercial real estate (CRE) loan comes in. Here’s a closer look at the basics of a commercial real estate loan.
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Commercial Real Estate Loans Types, Pros and Cons & How to Apply

Time in Business

No Requirement

Annual Revenue

No Requirement

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Funding Amounts
Up to 30M
5.99% - 14.99%
6 months - 30 years
Processing Time
30 - 60 days

You'll be considering your finance options if you want to purchase or develop a commercial property. One area of focus should be commercial real estate loans, but what do you need to know about these solutions? What different types are available, how do you apply, and what are the pros and cons? We'll answer these questions and more.

What is a Commercial Real Estate Loan?

What is a Commercial Real Estate Loan?

Companies or investors will typically use commercial real estate loans to buy properties for business purposes. These properties could range from single or multi-family homes to fix and flip, office buildings to warehouses or condominium complexes to restaurants. You can also apply for a commercial real estate loan to buy virgin land for the purposes of improvement and development. These loans tend to be secured against the property being financed and are very common today.

What are the different types of Commercial Real Estate Loans?

What are the different types of Commercial Real Estate Loans?

There are many different types of commercial real estate loans. Here are nine of the most common:

1. Conventional Mortgage-based Loans

This is probably the most popular type of commercial real estate loan and is similar to a residential mortgage. However, unlike typical home mortgages that may have a 30-year repayment schedule, these real estate loans can be much shorter, such as 10 years or less. If you opt for a variable solution, interest rates tend to fluctuate with market trends. If you want more predictability, pick a fixed-rate mortgage where the payment and interest rates will remain the same, month by month.

While the lending company will typically secure the loan against the property, it could choose other collateral, such as property that you may already own elsewhere or a pool of money you might hold in another account.

Terms and conditions will also vary by lender. For example, the lender may require that you have a certain amount of time in business, a minimum personal credit score, or that you intend to use the premises for specific business uses.

2. Seller Financed Loans

You may be able to obtain financing directly from the seller. Much may depend on their motivation and how keen they are to pass on the property. Due to these motivation levels, seller-provided financing may be more attractive than a conventional mortgage-based loan. The seller may be more flexible and negotiate a lower interest rate to get the deal across the line.

You often find this type of loan when buying condominiums or apartment complexes. If the building owner is an individual rather than an institution, they may be more interested in discussing seller finance.

3. Interest-Only Loans

These are often called “balloon” loans and can offer an attractive solution if you want to keep monthly payments as low as possible while you are improving the property. These will work if you anticipate having a significant amount of money at a future date. You’d use this money to pay off the bulk of the advance and will only pay a smaller interest amount in the meantime. These loans tend to be relatively short.

4. Refinancing Loan

A refinancing loan may be appropriate if you already have financing and are looking for a better deal. For example, interest rates may have lowered considerably since you first took out the loan. On the other hand, you may want to expand your current property and would like to use the equity that you have already built up to finance it. Again, you may be able to refinance an existing loan if you need cash to make your balloon payment on an interest-only loan.

5. Hard Loans

This is a more unconventional approach and typically involves private investors rather than mainstream lenders. It may be attractive if you do not have a high credit rating and may struggle to get financing elsewhere. In this case, the private investor may be willing to take a calculated risk based on the property value, but these loans tend to be short-term rather than long-term. They may also carry higher than average interest rates and require certain fees upfront. Some borrowers may look for hard loans if they only intend to keep their property for a short time or are in a time crunch to acquire the property.

6. Bridge Loans

Another short-term loan option is the “bridge,” which may be perfect if you need to renovate a property before it is eligible for a bigger finance deal. Other borrowers may seek a bridge loan for a certain period before improving their credit rating and getting more favorable terms elsewhere. Still, you may have to furnish a 25% or more down payment and need a strong credit score to get this type of loan from a traditional bank.

7. Blanket Loans

You may file these under “specialty” loans that are only appropriate if you have multiple properties you want to cover under one financing arrangement. This may give you flexibility when spending money on individual properties or selling one without penalty, but they often have crushing terms and conditions.

8. SBA 7 (a) Loans

The Small Business Administration offers these loans to companies that need significant working capital, equipment, or commercial real estate. With SBA 7 (a) loans, you can get up to $5 million in financing and repayment terms of up to 25 years (real estate). Interest rates tend to be relatively low in comparison to other forms of borrowing.

The SBA will “guarantee” small business loans, making them easier to get than traditional loans. You need to be able to qualify using strict criteria, and the government will look at various eligibility factors, including location, size of the business, and organizational structure.

9. SBA 504 Loans

In this case, the small business administration teams up with a Community Development Corporation to offer loans for commercial real estate (and equipment purchases). Thus, most of the loan comes from a combination of traditional bank lending and non-profit organizations, while the borrower will have to put down 10% of the total sum.

SBA 504 loans have a maximum value of $5 million as well. The terms and conditions are strict, especially regarding what you can and cannot use the loans for. To qualify, you need to make some accounting calculations, including the all-important “debt service coverage ratio.” This is to ensure you can afford the repayments as part of your other ongoing obligations.

What are Commercial Real Estate Loan best use cases?

What are Commercial Real Estate Loan best use cases?

Traditional mortgage-based loans are typically used to buy or refinance various commercial real estate solutions, including retail or shopping centers, office buildings and industrial warehouses. They are certainly the number one option where the potential loan is sizable.

Bridge loans can be used as a stopgap solution if you cannot initially qualify for other funding. They are also favored if you intend to buy a “fixer-upper” and renovate or convert to a commercial opportunity.

SBA loans have strict requirements. You may need to be the owner occupier to qualify and create a certain number of jobs. In this case, these loans may be attractive if you intend to open a new business in an economically deprived area.

How long does It take to obtain a Commercial Real Estate Loan?

How long does It take to obtain a Commercial Real Estate Loan?

This will vary based on the type of loan. SBA loans may take two or three months to close, while conventional mortgage loans and alternative investment real estate loans can be a lot quicker, and you may be able to get your funds within a month.

What is LTV and DSCR?

What is LTV and DSCR?

Loan-to-Value (LTV) Ratio

In mortgage lending, the loan-to-value ratio is used to measure the total value of a mortgage compared to the total value of the property. With a traditional mortgage, it’s possible to borrow up to the full value of your home (depending on the specific loan program), for an LTV of 100%.

With commercial real estate loans, however, lenders prefer a maximum LTV of 75% to 80%. This means you may need to put at least 20% to 25% (or more) down to be approved.

Debt Service Coverage Ratio (DSCR)

Lenders want to know that you generate enough income to handle new real estate debt. For residential mortgages, lenders look at your debt-to-income (DTI) ratio.

With commercial loans, however, lenders look at a business’s debt service coverage ratio. This measures a borrower’s ability to pay their debts based on the business cash flow. It’s calculated by dividing your annual net operating income by your total annual debt payments. The higher your DSCR, the higher your approval odds.

The median DSCR among approved commercial real estate loans was 1.25 as of 2019, according to the National Association of Realtors Commercial Lending Report. This means if you borrowed $100,000, your net operating income should be $125,000 per year.

Pros and cons of Commercial Real Estate Loans?

Pros and cons of Commercial Real Estate Loans?


  • Low interest rates
  • Capital gains accumulation
  • Financial flexibility
  • Rental potential
  • Refinancing opportunities
  • Tax-deductible


  • Hard to raise a deposit
  • Increasing interest rates
  • Unpredictable market conditions
  • Significant fees
  • Difficult to qualify

Do I need collateral to obtain a Commercial Real Estate Loan?

Do I need collateral to obtain a Commercial Real Estate Loan?

In most cases, the property serves as commercial real estate loan collateral. You may be able to offer other forms of collateral, such as investment accounts or bank savings. Lenders may consider any loan request without collateral to be too much of a risk.

Can a first-time Investor get a Commercial Real Estate Loan?

Can a first-time Investor get a Commercial Real Estate Loan?

If you are a first-time investor, there is no reason why you cannot get a commercial real estate loan. You will need to prepare carefully and have a good plan in place. You need to have believable projections and show how to add value to the asset once funded. 

For example, can you make capital improvements, increase rents, improve management, or lower operating costs? Aim to show that market conditions should be favorable and that you can easily accommodate the loan repayment costs within any financial projections. You should also get a skilled accountant to help create the documents and accounting calculations necessary to support any application.

Will I need to personally guarantee a Commercial Real Estate Loan?

Will I need to personally guarantee a Commercial Real Estate Loan?

In most cases, the property being financed serves as the collateral for a real estate loan. In the case of a commercial real estate loan, however, the borrower may be required to make a personal guarantee as well in addition to a downpayment of 25% or more.

This means that if the business can’t make the loan payments and liquidating collateral (i.e., foreclosing on the property) doesn’t produce enough money to repay the loan, the borrower owner(s) who signed for the loan are personally responsible for covering the mortgage payments.

What Is the application process for a Commercial Real Estate Loan?

What Is the application process for a Commercial Real Estate Loan?

Before submitting a formal application, you can usually go through a pre-approval or qualification process. This will give you an idea of how much you qualify for and enable the lender to do a certain amount of due diligence.

The loan application process is different for commercial real estate than for a traditional business loan. You can expect the lender to review your personal credit and business history, collateral, business plan (if required) and projections. During the loans underwriting process, a committee will generally review your application and project for a decision before issuing a term sheet. The term sheet will contain all the information about financing, fees, uses and interest rates. If everything is in order, the final details will go back to the underwriter for ultimate approval before documents are signed and loan funded.

How to apply for a Commercial Real Estate Loan

How to apply for a Commercial Real Estate Loan

With Lendzero, applying for a business term loan is easy. 

Step 1: Click on the Get Approved button above and answer a few basic questions about your business, project or need. We will inform you about your best options and how many exist (this will set your expectations). 

Step 2: After this is complete, you will be asked to create a username and password to begin your electronic loan application. This process normally takes about 6 – 7 minutes (if you have all your documents easily accessible and ready). 

To complete the loan application, here is what you will need to have handy:

  • Business TAX ID (federal tax id number, aka EIN/FEIN)
  • Estimated business revenue and average bank balances
  • Social security number for all applicants
  • Last 3 months of business bank statements (download the PDF statements from your business bank account)

Step 3: Once the application process is complete, we will send you the completed loan application for you to review and sign. Once you have signed for your application, the process is complete. You have officially applied and started your journey to receiving pre-negotiated commercial real estate funding offers. Your Lendzero funding specialist will reach out to you to guide you through the remaining steps of the process, and provide the necessary guidance and support needed with the goal of successfully obtaining the proper loan.

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