Many commercial lenders require a meaningful down payment. Higher LTV often requires added reserves or a stronger DSCR. Many lenders look for a DSCR of about 1.25 or more.
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How Commercial Real Estate Loans Differ From Business Loans
A standard business term loan is underwritten on your company's cash flow, revenue history, and personal credit score.
A commercial real estate loan is underwritten primarily on the property itself, its income, its value, and what the lender can recover if you stop paying.
That shift changes everything: the application, the documentation, the timeline, and the lender type you should be talking to.
Most business lenders don't touch CRE at all, and most commercial real estate lenders don't write unsecured business loans.
The Documentation Gap
Business loan applications are often short and can close in days or weeks.
Commercial real estate loan packages include the property appraisal, rent rolls, and operating statements. Environmental reports and title work add complexity and extend timelines to weeks or months.
Recourse vs. Non-Recourse
Most business loans are full recourse, meaning the lender can pursue your personal assets if the loan defaults.
Some commercial real estate loans, particularly CMBS and life insurance loans, are non-recourse, which limits the lender's recovery to the property itself. That's a meaningful structural difference that affects your personal risk exposure.
Loan Types for Long-Term Commercial Real Estate
There's no single "commercial real estate loan." The product you qualify for depends on occupancy type, property class, loan size, and your timeline.
Here are the main categories you'll encounter.
Conventional Bank Loans
These are standard commercial mortgages issued by banks, credit unions, and regional lenders.
LTV often caps near 70% to 75%, and terms vary by lender. Rates depend on property type and borrower strength.
SBA 504 Loans
The SBA 504 is specifically for owner-occupied commercial property.
It can let eligible owners put 10% down, and more for startups or special-purpose property. A bank first mortgage typically covers about 50% and a CDC second loan about 40%. The fixed-rate CDC portion runs 10, 20 or 25 years. The rate is set at the debenture sale, so ask a CDC for today's rate.
SBA 7(a) Loans
The 7(a) is more flexible than the 504 and can work for mixed-use properties where the owner occupies most of the space. Terms extend up to 25 years for real estate.
Rates are often variable. On loans over $350,000 the SBA caps the spread at 3.0% over the base rate. Prime is 7.00% as of Oct. 21, 2026, so the cap works out to 10.00%.
CMBS Loans
Commercial mortgage-backed securities loans are typically non-recourse and pool into securities sold to investors.
They often work best for larger, stabilized, income-producing properties. They're less ideal for value-add plays or unstable cash flow properties.
Private and Bridge Loans
Private lenders and hard money sources often close faster than banks.
You'll pay for that speed with higher rates and lower LTV limits. Terms are often short, such as 1 to 3 years, as a bridge while you stabilize a property.
Life Insurance Company Loans
Life insurance lenders are often conservative. They tend to lend at lower LTV with higher DSCR requirements.
They often target high-quality assets with long-term lease commitments and may offer long terms.
What Lenders Underwrite: LTV, DSCR, and NOI Explained
Three numbers drive every commercial real estate underwriting decision: LTV, DSCR, and NOI.
Understanding what each one means will save you weeks with underwriters. Know your numbers before you apply.
Loan-to-Value (LTV)
LTV is the loan amount divided by the appraised property value. A $1,500,000 property with a $1,125,000 loan equals 75% LTV.
Many bank lenders cap near 75%, while life insurance companies often want lower.
Debt Service Coverage Ratio (DSCR)
DSCR measures whether the property earns enough income to cover its loan payments. The formula is Net Operating Income divided by Annual Debt Service.
A DSCR of 1.25 means the property generates $1.25 in income for every $1.00 of loan payment. Many lenders look for at least 1.25. Anything below 1.0 means the property loses money.
Net Operating Income (NOI)
NOI is the property's gross rental income minus operating expenses, before mortgage payments and depreciation. Lenders often use trailing 12-month actual NOI verified by operating statements.
They often apply a vacancy factor even if the property is fully leased, and they avoid projected income.
Amortization vs. Loan Term
Commercial real estate loans often have shorter terms than their amortization schedules. A 25-year amortization with a 10-year term calculates payments over 25 years.
A balloon payment comes due at year 10. Many first-time CRE borrowers miss this balloon risk.
CRE Lenders and Rate Ranges
Ranges below are estimates and vary by property type, location, and borrower credit profile.
Use this as a starting point for lender conversations, not as a quote.
| Loan Type | Max LTV | Term | Rate Range | Best For |
|---|---|---|---|---|
| Conventional Bank Loan | Often near 75% | Often 5 to 25 yr | Varies by property and borrower | Strong credit, existing banking relationship |
| SBA 504 | Up to 90% (10% down) | 10, 20 or 25 yr | Fixed, set at debenture sale | Owner-occupied, small business |
| SBA 7(a) | Varies by lender | Up to 25 yr | Base rate + capped spread (3.0% over $350K) | Mixed-use or partially owner-occupied |
| CMBS Loan | Often 70 to 75% | Often 5 to 10 yr | Varies | Non-recourse, larger properties |
| Private / Bridge | Lower than banks | Often 1 to 3 yr | Higher than banks | Fast close, value-add properties |
| Life Insurance / DSCUS | Lower leverage | Often long terms | Varies | High-quality assets, low leverage |
Property Type Matters as Much as Loan Type
Lenders don't treat all commercial real estate equally. Multifamily and industrial properties often draw more lender interest.
Retail and hospitality often carry more scrutiny, with higher spreads and lower maximum LTVs.
Owner-Occupied Office
SBA 504 is often worth pricing first, with as little as 10% down and fixed rates. Conventional banks may lend at lower LTV for strong borrowers.
Retail Strip Center
Bank or CMBS financing works for stabilized centers with anchor tenants. Lenders scrutinize tenant credit and lease schedules.
Warehouse / Industrial
Often a favored property class. Life insurance lenders may compete for stabilized assets at lower LTV.
Multi-Tenant Mixed-Use
SBA 7(a) can work if the owner occupies most of the building. Otherwise expect conventional bank terms with emphasis on occupancy and stability.
Compare commercial real estate loan options, no hard credit pull.
Most borrowers receive competing term sheets within 48 hours.
Check My Options →Key Commercial Real Estate Lending Terms
Commercial real estate has its own vocabulary that lenders expect you to know. These are the terms in every term sheet and loan document.
Balloon Payment
The lump-sum principal balance due at the end of a loan term shorter than the amortization period. A 25-year amortization with a 7-year term means owing about 85% to 88% at year seven. That assumes rates of 6% to 8%.
Prepayment Penalty / Defeasance
Most commercial loans carry prepayment restrictions. Step-down penalties decline over time, for example 5-4-3-2-1%.
CMBS loans often use defeasance, requiring Treasury securities substitution instead of payoff: a complex, expensive exit.
Loan-to-Cost (LTC)
LTC applies to construction and value-add projects, measuring loan against total project cost. Many lenders cap LTC well below 100% of cost for ground-up construction.
Rehab limits vary with borrower experience.
Cap Rate
Cap rate is NOI divided by property value: the yield before financing costs. Lenders use cap rates to benchmark value independently.
Suppose a property trades at a 5% cap and the loan rate is 7.5%. That is negative leverage, because financing costs exceed earnings.
Frequently Asked Questions
Many conventional commercial lenders require a meaningful down payment, often 20% or more.
SBA 504 loans allow as little as 10% down for owner-occupied properties. Private and bridge lenders often cap LTV lower than banks.
Many commercial real estate lenders look for a DSCR of at least about 1.25. That means net operating income is at least 25% higher than annual debt service.
Stronger deals often target more. Life insurance and CMBS lenders sometimes require more.
Yes, but your options narrow considerably. Private bridge lenders focus heavily on asset value and exit strategy rather than borrower credit scores.
Expect higher rates and lower LTV limits. Bank and SBA financing often requires a good credit score.
A conventional commercial mortgage is a single loan from one lender, often with a larger down payment.
An SBA 504 loan is structured as two loans: a first mortgage from a bank (typically about 50% of the project) and a certified development company (CDC) loan (typically about 40%). The borrower puts in at least 10%. The 504 is restricted to owner-occupied properties used for business operations.
Bank loans and conventional commercial mortgages often take a couple of months. SBA 504 loans can take longer because of the additional review process.
Private bridge lenders often close faster, which suits time-sensitive acquisitions or value-add deals.
Sources
Figures labeled as illustrations are examples, not market data. Rates change often. Confirm current terms with a lender.
- Board of Governors of the Federal Reserve System, Bank Prime Loan Rate (DPRIME), FRED, 7.00% as of Oct. 21, 2026
- U.S. Small Business Administration, 7(a) loan terms, conditions and eligibility (maximum spreads, real estate maturities, minimum 504 equity)
- U.S. Small Business Administration, 504 loans (10, 20 and 25-year terms, rate pegged to the 10-year Treasury)
Last reviewed: October 24, 2026