A commercial real estate loan (CRE) is financing for the purchase, refinancing, construction or renovation of business-used real estate such as offices, warehouses, retail spaces or industrial buildings. For small businesses, the most common case is a home equity loan, where the business purchases the building in which it operates its operations. This page explains the main types of CRE loans, what lenders look for, and how to prepare.
Key insights
- A commercial real estate loan finances the purchase, refinancing, construction or renovation of commercial real estate.
- Conventional mortgages, SBA 504 and 7(a) loans, bridge loans, and construction loans are the main types.
- Lenders look at the business’s cash flow, down payment, creditworthiness, and the property itself.
- With owner-occupied SBA loans, the business must occupy the majority of the property.
Types of Commercial Real Estate Loans
- Conventional commercial mortgages. Bank or credit union loans that are secured by real estate, usually with a down payment and a long amortization period.
- SBA 504 Loans. Long-term fixed rate financing through a CDC and a senior lender for owner-occupied properties and durable equipment.
- SBA 7(a) Loans. Can finance real estate as part of a broader business purpose. See SBA loans.
- Bridging loans. Short-term financing to purchase or reposition a property before longer-term financing is available.
- Construction loans. The funds are withdrawn gradually as the project is created and are often converted into a permanent loan. Contractors financing their own operations should consider construction financing.
- Hotel and hospitality property. See hotel purchase loan.
How hard is it to get a commercial real estate loan?
CRE loans require a higher level of underwriting than most business financing. Lenders check both the company and the property:
- Cash flow: whether the business (or the property’s income) covers the payments with margin.
- Deposit and loan value: how much equity you bring with you.
- Credit rating and experience: Creditworthiness and track record of the owners.
- Occupancy: Home equity loans and SBA programs generally require the business to occupy most of the property.
- Reports and environmental reports: Standard for most CRE loans.
Established companies with stable cash flow and a reasonable down payment have the most options. Approval is always subject to review by the lender.
What it costs
The costs depend on the type of loan, the property, the down payment and your finances. Compare offers for total costs, including plan type (fixed or variable), any balloon payments, prepayment penalties and closing costs. Our Business Loan Calculator Guide and SBA Loan Calculator can help you estimate payments.
Here’s how to prepare
- Know the property, the price and how much you can invest.
- Gather two to three years of business and personal tax returns, recent financial reports, and a debt plan.
- Get details about the property: sales agreement, rental record (if part of the building is rented) and any appraisals or inspections.
- Apply to SMB Compass to compare your options. All offers are subject to change.
Frequently asked questions
What is a commercial real estate loan? Financing secured by commercial real estate for purchase, refinancing, construction, or renovation.
Can I use an SBA loan to purchase a building? Yes. SBA 504 and 7(a) loans allow eligible small businesses to finance owner-occupied commercial real estate.
How much deposit do I need for a commercial property? It depends on the lender, the type of loan and the property. SBA programs often require less down payment than traditional loans. Ask each lender about their requirements.
Discover commercial real estate financing
Start your application with SMB Compass to see the options our financing partners can offer, subject to approval.
Sources
This article is for general information purposes only. This does not constitute financial, legal or tax advice, nor does it take into account your company’s specific situation. Interest rates, terms and requirements change and vary by lender. Before making a financing decision, speak to a qualified financial advisor, accountant or lawyer. SMB Compass is a business financing company and not a direct lender.
