Commercial Real Estate Loans: Best Options for Your Business
A commercial real estate loan can help you buy, build or renovate property for your business, such as a new office space or a second store across town. If you don’t have funds to finance land or property upfront, a commercial mortgage could help.
The best commercial real estate lender will depend on your overall goals, your qualifications and how quickly you need the loan.
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Best commercial real estate loans
Compare our top lenders to find a commercial mortgage that meets your business’ specific financial goals.
|Lender||Best for||Maximum loan amount||Terms||Minimum credit score|
|PNC||Traditional bank||$3,000,000||60 to 180 months (up to a 25-year amortization||Not disclosed|
|SBA||Large amounts||$5,000,000||300 months||680+ recommended|
|SmartBiz||Online marketplace||$500,000 (term loan)||24 to 60 months||Not disclosed|
|Funding Circle||Online term loan||$500,000 (term loan)||6 to 84 months||660|
Learn more about how we chose our picks.
PNC: Best for a traditional bank
|Term length||60 to 180 months (up to a 25-year amortization)|
|Est. starting interest rate||Fixed or variable rate, starting rate not disclosed|
|Min. credit score||Not disclosed|
|Min. time in business||3 years|
Various business products available
Approximately 2,500 branches nationwide
Limited information on interest rates and required credit score
Must be in business for 3 years to qualify
With branches in 28 states, PNC is a solid choice if you want an in-person, traditional bank experience with access to various small business solutions. Furthermore, PNC recently launched its Minority Business Development Group to help educate and empower minority-owned businesses on their entrepreneurial path.PNC offers conventional mortgages for business from $100,001 to $3,000,000. You can choose fixed or variable rates, although PNC doesn’t disclose ranges in advance. Monthly payments are automatically deducted from your business checking account. Equity in owner-occupied real estate is required as collateral.
SBA: Best for large amounts
|Term length||300 months|
|Est. starting interest rate||Prime + 2.25%|
|Min. credit score||680+ recommended|
|Min. time in business||Typically 2 years|
Capped interest rates
Long repayment terms
Collateral and/or a personal guarantee may be required
Long processing time compared to online lenders
The U.S. Small Business Administration (SBA) partners with lenders nationwide to guarantee loans for eligible small business owners. An SBA guarantee reduces the lender’s overall risk, allowing them to offer lower rates and higher loan amounts with longer terms.You have two choices to fund commercial real estate: SBA 7(a) or SBA CDC/504. Both options offer large amounts — up to $5,000,000 — with terms of up to 300 months. The SBA 7(a) is the most common type of SBA loan and can be used to fund general business purchases, including commercial real estate. However, the SBA CDC/504 is designed for long-term expenses like commercial real estate or equipment financing.
Keep in mind that the SBA imposes strict eligibility requirements, including a recommended FICO Score of 680 or above, two years’ in business and reasonable owner equity to invest. You might want to explore alternative funding options if you’re a startup or have a low credit score.
SmartBiz: Best for online marketplace
|Term length||24 to 60 months for term loan|
|Est. starting interest rate||8.99%|
|Min. credit score||Not disclosed|
|Min. time in business||2 years|
Quick 5-minute prequalification process
Low minimum revenue requirement for SBA loans ($50,000)
Lower rates may be available when applying directly through SmartBiz’s partner lenders
Charges packaging and referral fees for most loans
SmartBiz is an online marketplace that connects business owners with banks and other institutions to help secure competitive financing for your business. With SmartBiz, you can compare rates for term loans, SBA 7(a) loans and custom finance options.You can use SmartBiz to secure a term loan of up to $500,000, which can go toward commercial real estate, as well as general business expenses. SmartBiz can help you find a preferred SBA lender offering loan amounts as high as $5,000,000 if you need access to more capital.
Although SmartBiz’s funding process is quick and convenient, be prepared to pay extra fees. For example, a term loan will typically include a 3% referral fee and a 3% package fee, plus an optional 5% prepayment penalty (which comes with a 2% interest rate reduction). Partner banks and institutions may charge extra in addition to these fees.
Funding Circle: Best for online term loan
|Term length||6 to 84 months|
|Est. starting interest rate||12.45%|
|Min. credit score||660|
|Min. time in business||2 years|
Can receive funds as quickly as three business days
Low minimum revenue requirement of $50,000
Collateral is typically required
Requires a minimum credit score of 660
Although term loans aren’t specifically designed for commercial real estate expenses, Funding Circle states that you can use its term loan for almost any business purchase, such as financing new growth or an expansion. Amounts range from $25,000 to $500,000, with repayment terms of up to seven years. The qualification process only takes minutes and won’t affect your credit score. If approved, you could receive funds within three business days.Another bonus to Funding Circle’s term loan is the minimum annual revenue of $50,000, making it an ideal choice for low-revenue companies. However, you need an annual revenue of $400,000 or higher to apply for Funding Circle’s SBA 7(a) loan, which funds up to $5,000,000. If deciding between the two loan products, note that the SBA 7(a) loan likely has stricter credit score requirements but if approved, you can use the funds to open a new location or buy another business.
Funding Circles may require collateral and a personal guarantee for many of their products.
What is a commercial real estate loan?
A commercial real estate loan, also called a commercial mortgage loan, is used to fund the purchase of an existing space for your business or lot where you plan to build your business’s new location. These loans are exclusively for commercial real estate, meaning you can’t use them to purchase residential properties.
When it comes to commercial real estate loans vs. residential mortgages, it’s likely considered commercial real estate as long as the property’s primary purpose is to produce income.
How does a commercial mortgage work
Like a residential mortgage, a commercial real estate loan is a form of secured loan where the property and or building act as collateral to back the loan. That means that if you default on your mortgage payments, you could face foreclosure.
Business owners often take out commercial mortgages to cover the costs of purchasing commercial property, renovating an existing office space or upgrading their business’s appliances and machinery. For example, you can use a commercial real estate loan to cover the cost of land and construction for a new business complex or to expand your restaurant’s kitchen and upgrade appliances.
Types of commercial real estate loans
|Type||How it works||Who it’s best for|
|Traditional commercial loans||Like residential mortgages, banks and other major lenders offer secured loans at competitive rates to creditworthy borrowers.||Businesses with good credit that need a long repayment term. This is the most straightforward option and will probably work best for most borrowers.|
|SBA loans||The U.S. Small Business Administration partially guarantees SBA loans disbursed by partner lenders to help small businesses secure lower rates.||Small, for-profit businesses willing to delay funding in exchange for lower rates. SBA loan rates are competitive, but the complex underwriting required means you won’t get your funds as quickly as other types of financing.|
|Bridge loans||Lenders offer a lump sum of cash more quickly with bridge loans than other types of loans, but funds will need to be repaid in a shorter time frame. These loans can help cover a gap in funding while a longer-term form of financing is secured.||Short-term real estate investors and those trying to out-bid cash buyers. If you can’t repay the loan quickly, you should be prepared to refinance.|
|Hard money loans||Similar to a bridge loan, private lenders usually offer hard money loans, as opposed to banks and credit unions. Because of this, hard money loans may come with shorter repayment terms and higher rates.||Those who need short-term funding but haven’t had success qualifying for a bridge loan from a traditional bank.|
|Conduit lenders||These lenders are more like brokers than actual lenders. A conduit lender will sell loans for other lenders and earn a commission after the sale. These loans may also be bundled with other mortgage loans and sold to investors.||Business owners seeking more leverage and lower, fixed rates. Typically offered on a non-recourse basis, this is an ideal choice if you want to protect your personal assets.|
|Peer-to-peer (P2P) lenders||P2P lenders allow individuals to fund loans rather than banks and commercial loan lenders.||Borrowers with less-than-perfect credit may find individual investors are more willing to take a risk on their projects than traditional banks.|
Commercial real estate loan rates
Interest rates vary greatly depending on the lender, loan product and your creditworthiness. Here’s a general idea of what to expect.
- Traditional commercial real estate loans: 5% to 7%
- Small business term loans: 2.5% to 71%
- SBA 7(a) loans: Prime + 2.5% to Prime + 4.75%
- SBA CDC/504 loans: Approximately 3%
- Commercial bridge loans: 4.2% to 13.2%
- Commercial hard money loans: 10% to 18%
- Conduit loans: 3% to 4.6%
Try using a mortgage calculator to estimate monthly payments to help make the best commercial real estate financing decision for your business.
How to get a commercial real estate loan
1. Get your business and personal finances in order
As with any loan, your current financial situation and credit history will play a major role in the types of loans and rates you can expect to receive. Although the specific requirements to get a business loan will vary by lender, here are some common commercial real estate loan requirements.
Your personal finances:
- Your credit score: Most lenders require a personal credit score in the 600s, although a higher score will help unlock better rates and terms. If you have a low credit score, you can consider a bad credit business loan but know that you’ll probably pay more in the long run. Try paying off outstanding credit card debt and reducing installment loan balances to improve your credit score.
- Your DTI and net worth: Your debt-to-income ratio and overall net worth will convey your financial responsibility and stability.
- Liquefiable assets: Lenders may ask to see proof of assets, such as bank account statements, to gauge your ability to repay debts during times of economic distress.
- Your financial history: Although this is reflected in your credit score, lenders may delve into your credit history to see if you’ve had a recent foreclosure, bankruptcy or loan default. They’ll also want to look at your personal tax returns.
Your business finances:
- Your business credit score: Your business credit score varies depending on the reporting agency, but most fall between 0 and 100. Most lenders like to see a score of 75 or higher to offer the best rates, but this can also be balanced with a robust personal credit score. Reducing your business’s outstanding debts and increasing revenue are great ways to improve your business credit score.
- Your business’ assets: Does your business possess a significant cash reserve, pending invoices or valuable equipment that could be liquidated to pay off a real estate loan?
- Your NOI: Your business’ net operating income indicates your business’ profitability after all expenses are paid. Some lenders will impose a minimum revenue amount to approve you for a loan, while others — chiefly SBA lenders — may also set a maximum revenue amount.
- Time in business: Depending on the lender and type of loan you want, you may need to prove you’ve been in business for a minimum number of years. You can use previous tax returns to prove your business’ history and average NOI.
- Licenses to do business: Do you hold the proper licenses and certifications to conduct your business?
2. Document the property of interest
You’ll need to provide the lender with information about the desired property when applying for real estate lending. The following details will vary based on the lender and property but can help evaluate how to underwrite your loan.
- The property’s address
- Property type (e.g., residential home, apartment building, mixed-use building, standalone retail space)
- The owner-occupancy rate of the property (What percentage of the property’s leasable space will your business occupy?)
- The total sale price of the property
- Plans to invest in renovations after buying (If so, how much will you need?)
- List of revenue-generating tenants already in the property (If so, how much can you expect to collect?)
3. Fill out online applications
Depending on the type of lender and loan you choose, you can apply online, over the phone or in person. Regardless, prepare to submit the above information to speed up your application process.
It’s worth applying to multiple lenders to find the best deal. Just make sure to apply within a 30-day timeframe — called “rate shopping” — to avoid extra marks on your credit report.
Lenders will then review your application, send an appraiser to evaluate the property and request supporting documentation (if necessary) before informing you of their decision. Again, depending on your loan type, this process could take anywhere from a few days to two months.
4. Review offers
If you applied to multiple lenders, scrutinize the offers for the best commercial mortgage rate. Make sure to read the fine print regarding the required down payment, origination fees and any prepayment penalties.
5. Get funded
After reviewing the commercial mortgage loan agreement, you can sign and accept the funds. The timeline to close can take three to six months. Once your loan has been funded, you can begin work on your new property.
Alternatives to commercial real estate loans
Here are additional small business loans to consider beyond a commercial property loan. Be sure to read the details on acceptable purchases since some loan programs don’t allow real estate purchases or expansions. If that’s the case, you can use the loan to cover general business expenses while you save for more significant real estate purchases.
|Loans that may be eligible for commercial real estate expenses*||Funding options that can be used for working capital|
|Why to consider them||These tend to offer higher loan amounts with flexible terms and rates. However, be careful about charging exorbitant purchases to a business credit card since interest rates are typically much higher than loans. That said, charging real estate related purchases and paying off the card each month can be a great way to earn a lucrative sign-up bonus.||Although these options generally don’t allow you to fund commercial real estate expenses, they can help cover other business-related expenses, such as payroll, supplies or new equipment. Accessing more capital for your business can give your budget some breathing room, allowing you to save for a down payment more quickly.|
*check with your loan agreement first
How we chose our picks
To appear on our list of best commercial real estate loans, we selected lenders offering a minimum of $500 or higher with terms six months or longer, plus the flexibility to apply funds toward real estate expenses. We considered minimum time in business, time to funding, application eligibility, interest rates and overall loan cost in making our list.
Frequently asked questions
Traditional commercial mortgages can range from three to 10 years, with some stretching as long as 25 years. You can expect shorter terms if you use a term loan to pay for real estate expenses.
Many business owners may opt for a traditional commercial mortgage since it’s specifically designed for businesses purchasing or refinancing real estate. However, you can use a range of loan products for real estate financing, including SBA loans and term loans.
Remember, what works for one business may not work for yours — shopping around is a good way to find a loan that fits your business’s immediate needs and long-term goals.
Lenders typically want to see a personal credit score of 600 or higher to qualify for a commercial mortgage. However, SBA lenders recommend a score of 680 or higher to improve your chances of approval. Check your credit score for free to see where you stand before beginning the application process.