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.

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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

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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.

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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.

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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

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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

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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.