Commercial Real Estate Loans: Types, Rates, and How to Qualify (2026)
2026-03-21
Commercial Real Estate Loans: Types, Rates, and How to Qualify (2026)
Purchasing commercial real estate is typically the largest transaction a small business owner will ever make. Whether you're buying the building your restaurant has been leasing for a decade, acquiring a warehouse for your growing e-commerce operation, or purchasing an office building to house your professional practice, commercial real estate financing is more complex, more expensive, and more documentation-intensive than any other small business loan product.
Understanding the landscape — loan types, current rates, lender requirements, and the qualification metrics that matter — is essential before you begin the process. A misstep in lender selection or loan structure can cost hundreds of thousands of dollars over the life of the loan.
Types of Commercial Real Estate Loans
SBA 504 Loans
The SBA 504 program is the gold standard for small business owners purchasing commercial real estate they will occupy. It's specifically designed to make commercial property ownership accessible through below-market fixed rates and a low down payment.
How the structure works:
- 50%: Conventional bank loan at market rates
- 40%: CDC/SBA debenture at fixed rates (set at Treasury note yields + spread)
- 10%: Borrower down payment (15% for startups or special-purpose properties)
Key features:
- Fixed rates on the CDC portion (~5.5–6.5% as of 2026, 25-year term)
- Total project financing up to $5.5 million
- Must be owner-occupied (borrower occupies 51%+)
- Terms of 10 or 25 years on the debenture
- No balloon payment on the SBA portion
The SBA 504 is consistently the best-priced commercial real estate financing for qualified owner-occupants. The catch: 60–120 day timeline and extensive documentation.
Conventional Commercial Mortgages
Traditional commercial real estate loans from banks, credit unions, and commercial mortgage lenders. Less regulated than residential mortgages, with more flexibility in underwriting criteria but stricter financial requirements.
Key features:
- Down payment: 20–35% (investment properties require more than owner-occupied)
- LTV: 65–80% depending on property type and borrower
- Rates: Fixed or variable; current market rates range from 6.5–9.5% for well-qualified borrowers
- Terms: 5–25 years with 5, 7, or 10-year balloon payments common (loan amortizes over 20–25 years but balance is due at balloon date)
- Qualification: Based on DSCR (typically 1.25+), borrower credit, LTV, and property type
Most conventional commercial mortgages have balloon payments — meaning you'll need to refinance at the end of the initial term. In a rising rate environment, this creates refinancing risk.
Commercial Bridge Loans
Short-term financing used to bridge a gap — between purchasing and stabilizing a property, between securing long-term financing, or during renovation or repositioning.
Key features:
- Terms: 6–36 months
- Rates: 7–12% (higher risk than permanent financing)
- LTV: 65–75%
- Speed: 2–4 weeks (some hard money bridge loans in 7–10 days)
- Best for: Value-add acquisitions, properties with below-market occupancy, renovation projects, borrowers who need to close fast
Bridge loans are expensive temporary financing — the goal is always to refinance into permanent, lower-cost financing as quickly as the business case supports.
CMBS (Commercial Mortgage-Backed Securities) / Conduit Loans
CMBS loans are commercial mortgages that lenders package into securities and sell on secondary markets. Because the loan is sold to investors, the lender's underwriting is standardized and less flexible — but rates can be competitive.
Key features:
- Minimum loan size: $2 million (most conduit lenders)
- LTV: 65–75%
- Rates: Often competitive with conventional; 5-year fixed rates common
- Non-recourse: Lender can only pursue the property, not you personally, in default
- Prepayment penalties: Typically substantial (defeasance or yield maintenance)
- Terms: 5, 7, or 10-year fixed with 25–30 year amortization
The non-recourse feature is a significant advantage for investors — personal assets are protected in a default. The inflexibility and prepayment costs are the primary drawbacks.
Hard Money Loans
Asset-based loans from private lenders that emphasize the property's value over the borrower's creditworthiness. Used for acquisitions that can't qualify for conventional financing or that need to close extremely fast.
Key features:
- LTV: 60–75% (based on as-is or after-repair value)
- Rates: 10–18% plus points (1–4 points = 1–4% of loan amount upfront)
- Terms: 6–24 months
- Speed: 7–14 days
- Qualification: Primarily property value and equity; credit score less important
- Best for: Fix-and-flip, distressed properties, borrowers with credit challenges, auction purchases that require quick closing
Hard money is expensive and short-term by design. It's a bridge to a solution, not a permanent financing strategy.
Construction Loans
Finance the construction of new commercial buildings or major ground-up renovations. Disbursed in draws as construction milestones are met, then typically converted to permanent financing upon completion.
Key features:
- Rates: 1–2% above equivalent permanent loan rates
- LTV: Based on completed value (typically 65–75% of "as-completed" appraisal)
- Interest-only during construction period
- Convert to permanent loan or require refinancing upon completion
- Requires detailed construction plans, contractor bids, and cost breakdown
Current CRE Loan Rates (2026)
| Loan Type | Rate Range | LTV | Terms | Down Payment | Notes | |---|---|---|---|---|---| | SBA 504 (CDC portion) | 5.5–6.5% fixed | Up to 90% combined | 10 or 25 years | 10% | Best rates; owner-occupied only | | SBA 7(a) (real estate) | 9.75–12.25% variable | Up to 90% | Up to 25 years | 10–20% | More flexible than 504; variable rate | | Conventional commercial | 6.5–9.5% | 65–80% | 5–25 yrs (balloon) | 20–35% | Rate depends on term and credit | | CMBS/conduit | 6.0–8.0% | 65–75% | 5–10 yr fixed, 25–30 yr amort | 25–35% | $2M minimum; non-recourse | | Bridge loan | 7–12% | 65–75% | 6–36 months | 25–35% | Short-term; fast close | | Hard money | 10–18% + points | 60–75% | 6–24 months | 25–40% | Asset-based; fast close | | Construction | 7–10% | 65–75% of completed value | 12–36 months | 25–35% | Interest-only during construction |
All rates as of early 2026. Commercial rates are variable and lender-specific — these are market ranges, not guarantees.
Top Commercial Real Estate Lenders (2026)
| Lender | Best For | Loan Size | Specialization | |---|---|---|---| | JPMorgan Chase | Large conventional and CMBS | $1M+ | Multifamily, retail, office | | Wells Fargo | SBA 504, conventional | $500K+ | All property types | | Bank of America | Conventional, construction | $1M+ | Office, retail, industrial | | Live Oak Bank | SBA 504 | $1M–$5.5M | Owner-occupied; industry-specific | | Berkadia | Multifamily, CMBS | $5M+ | Apartment buildings | | Walker & Dunlop | Agency multifamily, CMBS | $5M+ | Multifamily; nationwide | | Lima One Capital | Bridge, construction | $75K–$5M | Fix-and-flip, value-add | | PrimeWest Mortgage | Bridge, hard money | $100K–$25M | Non-owner occupied investment | | Newmark | CMBS, large commercial | $5M+ | Major metros; institutional quality |
Live Oak Bank: Best SBA 504 Lender
Live Oak Bank is consistently among the top SBA lenders by volume nationally, with deep specialization in SBA 504 real estate transactions. Their industry-specialized underwriters understand the cash flow patterns of specific business types (healthcare practices, veterinary clinics, hotels, gas stations), which makes the underwriting process more efficient and accurate than generalist bank underwriting.
Lima One Capital: Best for Bridge and Construction
Lima One Capital focuses on residential and light commercial bridge loans and construction loans for investors and developers. They offer competitive rates (8–12% for bridge), fast closings (10–14 days), and programs for both fix-and-flip and new construction. Not appropriate for owner-occupied commercial properties — their focus is real estate investors.
Key Qualification Metrics
Debt Service Coverage Ratio (DSCR)
DSCR is the single most important metric for commercial real estate lending.
Formula: DSCR = Net Operating Income ÷ Annual Debt Service
Net Operating Income (NOI) = Gross rental income − vacancy allowance − operating expenses (excluding debt service, depreciation, and income taxes)
Annual Debt Service = Total principal + interest payments for the loan in question
Example:
- Gross rental income: $300,000
- Vacancy allowance (5%): −$15,000
- Operating expenses: −$85,000
- NOI: $200,000
- Proposed annual debt service: $150,000
- DSCR: 200,000 ÷ 150,000 = 1.33
Most lenders require a minimum DSCR of 1.20–1.35. SBA lenders typically require 1.25. CMBS lenders often require 1.25–1.30. A DSCR below 1.0 means the property loses money on a cash flow basis — essentially impossible to finance through conventional channels.
Loan-to-Value (LTV)
LTV measures the loan amount as a percentage of the property's appraised value. A $1M loan on a $1.5M property = 66.7% LTV.
Lower LTV = less lender risk = better rates. Most commercial lenders target 65–80% LTV for conventional loans; hard money lenders may go to 75%.
Debt Yield
An increasingly common metric (particularly for CMBS): NOI ÷ Loan Amount. A $200,000 NOI on a $2.5M loan = 8% debt yield. Most CMBS lenders require a minimum debt yield of 7–10% regardless of DSCR, as protection against cap rate compression.
Property Type Impact on Rates and Terms
| Property Type | Relative Rate Premium | LTV | Notes | |---|---|---|---| | Multifamily (5+ units) | Lowest | 75–80% | Lenders' favorite; strong secondary market | | Industrial / warehouse | Low | 70–75% | Strong demand; e-commerce tailwind | | Office | Moderate–High | 65–70% | Remote work uncertainty; higher scrutiny | | Retail (necessity-based) | Moderate | 65–70% | Grocery-anchored or medical preferred | | Retail (discretionary) | High | 60–65% | E-commerce pressure; stricter underwriting | | Hospitality (hotel) | High | 60–70% | Cyclical; requires DSCR well above 1.25 | | Special-purpose (gas station, car wash) | Highest | 55–65% | Limited reuse value; specialized underwriting |
The Commercial Real Estate Loan Process
Phase 1: Pre-Application (1–2 weeks)
- Identify the property; conduct preliminary due diligence
- Review your financial profile (personal credit, business financials, existing debt)
- Select lender type and initiate preliminary conversations
- Order preliminary title report; review any known issues
Phase 2: Application (2–3 weeks)
- Complete formal loan application
- Submit required documents (see below)
- Lender orders appraisal (typically $2,000–$5,000 at your expense) and environmental Phase I assessment ($1,500–$3,500)
Phase 3: Underwriting (2–4 weeks)
- Lender underwrites the property's income, your financials, and the appraisal
- Potential requests for additional documentation (letters of explanation, additional bank statements, rent rolls, lease agreements)
Phase 4: Commitment and Approval (1 week)
- Lender issues loan commitment letter with final terms
- Borrower reviews and accepts; pays any remaining fees
Phase 5: Closing (2–4 weeks)
- Title company prepares closing documents
- Lender prepares loan documents
- Borrower and their attorney review
- Closing day: sign documents, fund the loan, record with county
Total timeline: 45–90 days for conventional and SBA loans; 10–30 days for bridge/hard money
Commercial vs. Residential Loan Differences
| Aspect | Commercial Real Estate Loan | Residential Mortgage | |---|---|---| | Qualification basis | Property income (DSCR) + borrower | Borrower income primarily | | Down payment | 10–35% | 3–20% | | Interest rates | Higher (6.5–12%+) | Lower (6–8%) | | Loan terms | Balloon payments common | 15 or 30-year fully amortizing | | Government regulation | Minimal | Heavy (TILA, RESPA, CFPB rules) | | Appraisal approach | Income capitalization approach | Comparable sales approach | | Personal guarantee | Common for small loans | Not applicable | | Processing time | 45–120 days | 20–45 days |
Commercial real estate lending is relationship-based, property-specific, and complex enough that engaging an experienced commercial real estate attorney and a CPA familiar with real estate transactions is strongly recommended for any purchase over $500,000.