Commercial Real Estate Loans

Get a low-rate commercial real estate loan to buy an office building, hotel, or other commercial property.

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Overview of Commercial Real Estate Loans

Commercial real estate loans are used to purchase a variety of commercial properties. This includes both income-producing properties, such as hotels and shopping complexes, and owner-occupied facilities, such as retail space and office buildings. They are not available for fix-and-flip projects. Loan requirements and loan terms vary depending on which type of property you want to purchase.

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How Commercial Real Estate Loans Work

SBA 504 Commercial Real Estate Loans for Owner-Occupied Properties

The 504/CDC loan program from the U.S. Small Business Administration (SBA) is designed for the purchase of owner-occupied commercial real estate. In order to qualify for an SBA 504 commercial real estate loan, the property you are purchasing must be at least 51 % owner occupied. In addition, you must be able to show that the property will further public policy goals or create jobs in the community, and you must also have a strong personal credit score.

504 loans are available for small projects as well as large deals worth millions of dollars. These loans come in three parts. 50 % of the loan comes from a bank or other commercial lender. 40 % comes from an SBA-approved nonprofit organization called a Certified Development Company (CDC). The final 10 % comes from the borrower as a down payment.

You can enjoy low interest rates and long repayment times with an SBA 504 loan. Interest rates are low because the commercial real estate serves as collateral for the loan. The CDC portion of the loan usually has fixed interest rates of 3-4%. The interest rate on the bank portion of the loan is typically in the low single digits and can be fixed or variable. The typical term of a 504 loan is 10-20 years.

One of the downsides to an SBA loan is that the application process can take several weeks, even months, because of the paperwork required. But it may be well worth the wait since buying commercial real estate is a large endeavor.

If you're in the market for commercial real estate and will occupy at least 51% of the space, you may be a good candidate for an SBA 504 loan. We recommend working with Liberty SBF for SBA 504 loans. If you have credit score is above 680 (check here for free), you've been in business 4+ years, are profitable, and need more than $500k, speak with Liberty SBF today.

Commercial Real Estate Loans for Income-Producing Properties

You cannot qualify for an SBA 504/CDC loan unless the property you are purchasing is at least 51 % owner-occupied. For example, a retail business could qualify by purchasing a two-story building and using the main floor and basement while renting out the top floor. However, buying a hotel or shopping mall would not be suitable for an SBA 504 loan. In that case, we can help you get a conventional bank loan to purchase the commercial real estate.

In addition to your personal credit history, commercial real estate loans for income producing property are highly dependent on the property’s potential. These are the kinds of questions you should ask yourself: Is my property located in an economically up and coming area that will be attractive to tenants and customers? How much experience do I and my management team have in running similar properties? Are the tenants of the property creditworthy and reputable?

If you can answer “yes” to these questions, you are in a good position to qualify for a loan. In all cases, you should have a solid business plan. It must indicate that you have evaluated all financial aspects of the deal and will be able to run the property successfully.

Commercial real estate loans typically require a 25 % down payment. Another way of expressing this is with a Loan-To-Value Ratio--You can typically borrow about 75 % of the appraised value of the property. Another ratio that’s important is the Debt Service Coverage Ratio, which measures how much debt you have compared to the income the property will generate. Ideally, your DSCR should 1.25 or higher.

If that sounds like you, we recommend scheduling a free consultation with South End Capital.

Commercial real estate loans from a bank or private lender are not as favorable as an SBA 504 loan, but they still have very reasonable rates. Interest rates hover between 5-10 % for a bank loan and 11-14 % for a private lender. You can expect 3-10 year terms with a balloon payment in the end (the loan can be refinanced if you can’t afford the balloon payment).

Will I Qualify for a Commercial Real Estate Loan?

Commercial real estate loans are highly dependent on the type of property that you’re looking to purchase. However, regardless of property type, your chances of getting approved are higher if you have a credit score above 650, a down payment of at least 10 %, and a solid business plan.

SBA loans are designed for properties that are at least 51 % owner occupied and that will create jobs in the community.

Income-producing properties such as hotels and multi-family developments can obtain financing from a bank or private lender. Your ability to qualify and your interest rate will depend on the income-generating potential of the property. For example, if you’re looking to buy a shopping center with a creditworthy tenant like Walgreens, it will be easier to get a loan than if you’re buying a less expensive strip mall with local tenants.

Note: At this time, we cannot assist in providing commercial real estate financing for residents of New York or for properties that are based in New York.

Cost of Commercial Real Estate Loans

In general, commercial real estate loans have pretty low interest rates because the property serves as collateral for the loan.

SBA 504 loans are usually the most economical option for purchasing commercial property. The CDC portion of the loan usually has fixed interest rates of 3-4%. The interest rate for the bank portion of the loan is typically in the low single digits and can be fixed or variable. On top of the interest rate, 3 % of the CDC portion of the loan is charged as a fee.

If you’re not able to qualify for an SBA 504 loan, you may be able to get a standard bank loan or a private commercial loan. Interest rates are approximately 5-10 % for a bank loan and 11-14 % for a private lender.

Beyond interest rates, keep in mind that you may have to pay application fees, property appraisal fees, environmental study fees, and more as part of a commercial real estate loan application.

If you're in the market for commercial real estate and will occupy at least 51% of the space, you may be a good candidate for an SBA 504 loan. We recommend working with Liberty SBF for SBA 504 loans. If you have credit score is above 680 (check here for free), you've been in business 4+ years, are profitable, and need more than $500k, speak with Liberty SBF today.

The Details:


max-loan-amountMaximum Loan Amount
$150K - 15 Million +


loan-termTypical Loan Term
5-20 years


interest-ratesTypical Interest Rates
10-30 %


speedSpeed
3-4 weeks +



Down-PaymentDown Payment?
10-30 %


CollateralCollateral
The property serves as collateral.


Personal-GuaranteePersonal Guarantee?
Yes

Have a question?

Pros


small business loansLarge loan amounts - you can qualify for up to $13 million or more in financing.

small business loans

Commercial real estate loans often have low interest rates

small business loans

Long loan terms and low monthly payments

small business loansThe property serves as collateral, so no additional collateral is needed in most cases.

Cons


small business loansLong application process and lots of paperwork

small business loans

Need a good credit score to qualify

small business loans

Need reputable tenants (for income producing property) to qualify

small business loans

Some commercial real estate loans have balloon payments at the end of the term, which may require you to refinance the loan

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