Your Ultimate Guide to Commercial Real Estate Loans

This comprehensive guide will unravel everything about CRE loans—from the basics and requirements to understanding the type best suited for investors' projects.

We know navigating the waters of commercial real estate (CRE) loans can seem daunting. Finding the right loan, perfectly tailored to borrowers’ and investors’ unique goals and financial situations, is no walk in the park.

It’s not just about borrowing money—it’s about finding the right commercial real estate lender, negotiating complex terms, and ensuring their investment will give them the most bang for their buck.

And with so many requirements and different types of loans available for property investors, picking the right one can be tricky.

This comprehensive guide will unravel everything about CRE loans—from the basics and requirements to understanding the type best suited for investors’ projects.

What Is a Commercial Real Estate Loan? 

Commercial real estate (CRE) is any property used for business activities.

Office buildings, retail stores, hotels, industrial buildings, warehouses, apartment complexes, and multifamily housing are all considered CRE.

CRE loans allow business owners, investors, or developers to access capital for purchasing, refinancing, or developing income-producing properties. Banks, credit unions, and other financial institutions usually offer CRE loans.

To secure a commercial real estate loan, borrowers must meet stringent qualification standards, including having suitable credit, business experience, and a substantial down payment.

Types of Commercial Real Estate Loans

In commercial real estate financing, various loan options cater to different property types, borrower profiles, and investment objectives. These loan types differ in their interest rates, repayment terms, and eligibility criteria, making it crucial for potential borrowers to assess which option aligns best with their financial goals carefully.

Let’s dive deeper into each type:

Traditional Commercial Mortgage

A traditional commercial mortgage is a type of loan tailored to businesses and investors looking to acquire or refinance commercial properties like office buildings, apartment complexes, retail centers, or industrial properties.

These loans typically come with varying terms from the lender, with some offering fully amortized loans spanning up to 20 years.

Amortized loans consist of regular, fixed payments that aim to repay the principal and the interest over the loan’s term.

Longer-term loans often come with Loan-to-Value (LTV) ratios of up to 80%. This means the loan amount comprises up to 80% of the property’s appraised value.

In contrast, other banks may provide interest-only loans with shorter terms, around ten years, and lower LTV ratios of 65%—requiring borrowers to pay off the principal amount in a lump sum at the end of the term.

Traditional commercial mortgages provide flexibility and the opportunity to leverage capital for expansion, working capital, or consolidating debts.

Qualifying for a traditional commercial real estate loan can be challenging for borrowers, as banks have strict requirements. Financial institutions often favor business owners with good personal credit and assets with a high debt service coverage ratio (DSCR).

The DSCR measures a business’s ability to meet its debt obligations and is calculated by dividing the net operating income by the total debt service. A higher DSCR indicates a business’s better capability to repay the loan, making it a more attractive candidate for lenders.

Despite the stringent requirements for obtaining a traditional commercial mortgage, these loans carry lower interest rates than alternative commercial real estate lending products. The interest rates are usually within a few percentage points of a prime rate, i.e., Wall Street Journal prime rate. This feature can make traditional commercial mortgages more attractive for borrowers with strong financial profiles, as they benefit from lower overall costs and better long-term stability.

SBA loan

There are various small business loans, but the two common ones are SBA 7(a) loan and SBA 504 loan.

SBA 7(a) loan

Small Business Administration (SBA) 7(a) is a government-backed loan designed to help small businesses acquire, construct, or renovate land and commercial real estate buildings. This loan is popular among small business owners seeking financing for owner-occupied properties, with a maximum borrowing limit of $5 million.

The 7(a) loan offers flexible interest rates, which can be variable or fixed rates, with repayment terms extending up to 25 years.

To qualify, businesses must be U.S.-based and for-profit that demonstrate a need for financing. They must meet specific criteria on company size, type, and financial health. They must also meet specific criteria on company size, net income, and net worth.

The 7(a) loan offers competitive rates and terms, making it an attractive option for eligible small businesses seeking long-term financing for their commercial property needs.

SBA 504 Loans

A popular SBA loan product for property acquisition is the 504 loan. This loan is designed for owner-occupied real estate or long-term equipment purchases. It comprises two parts, with a Certified Development Company contributing up to 40% and a third-party lender providing 50% or more of the loan amount.

The borrower is responsible for a down payment of at least 10%. The loan amounts can reach as high as $5.5 million from the CDC portion, making it suitable for businesses with significant funding requirements.

Interest rates on the CDC portion are fixed and competitive, while third-party loan rates can be fixed or variable.

Ideal candidates for this loan are small business owners looking to invest in commercial property, significant equipment, or performing substantial renovations.

Commercial Bridge Loan

A commercial bridge loan is a short-term financing solution designed for business owners or investors seeking to secure a commercial property swiftly. These loans are a temporary measure to cover the acquisition of the property while securing long-term financing.

They have loan terms of six months to three years and typically carry higher interest rates than traditional loans.

To qualify, borrowers must have a strong credit score and low debt-to-income ratios. Most commonly, alternative lenders offer commercial bridge loans rather than traditional banks and credit unions.

Portfolio Loan

A portfolio loan is a specialized type of financing designed for borrowers who may not fit the criteria for traditional loans because of unique financial circumstances or non-traditional forms of income.

A portfolio loan allows individuals to bundle multiple properties into a single loan, simplifying the borrowing process and minimizing risk for the lender.

The terms for these loans vary depending on the property portfolio’s size and value and the borrower’s financial stability.

Common requirements for obtaining a portfolio loan include a strong credit score, stable income, a documented financial history, and potentially a larger down payment than conventional loans.

Soft and Hard Loans

Hard and soft loans are financing options that cater to borrowers seeking quick funding, flexibility, and alternative qualification requirements. Both hard and soft loans present viable options for borrowers who don’t fit the mold of conventional loan qualifications.

Hard money loans are short-term arrangements offered primarily by private lenders or investors, with higher interest rates, interest-only payments, and possible increased down payment requirements. They benefit borrowers with difficulty securing traditional mortgages.

Soft money loans are a hybrid between hard money loans and traditional mortgages. While still favoring speed and flexibility, soft money lenders consider a borrower’s creditworthiness for better interest rates and terms. These loans are often used by investors or landlords managing multiple rental properties in their portfolios, seeking faster funding to grow or sustain their real estate businesses.

Recourse vs. Non-Recourse Loans

Recourse and non-recourse loans are two distinct lending mechanisms catering to different borrowers’ needs and preferences.

In a recourse loan, the lender has the legal authority to claim the collateral and any additional assets in case of a default. This type of loan typically has lower interest—it has a reduced risk for the lender and is commonly used for mortgages, business loans, or auto loans.

A non-recourse loan limits the lender’s ability to recover losses to the specific collateral pledged by the borrower, so the lender cannot pursue the borrower’s other assets in case of default.

Non-recourse loans are often used when borrowers prefer to limit their personal liability, such as in large-scale commercial projects.

Non-recourse loans usually come with higher interest rates because of higher risk exposure for the lender. They have more stringent credit requirements and lower loan-to-value (LTV) ratios.

Common CRE Loan Requirements

Lenders will examine various factors relating to the property, borrower, and the investment’s overall feasibility.

CRE lenders will assess the property’s location, marketability, and potential for generating income. They will also examine the borrower’s financial statements and business plan, paying close attention to the viability and projected growth of the business.

In short, CRE loan requirements often boil down to security, income, and credit.


Lenders require a certain amount of equity in the property being borrowed against. If the borrower defaults on the loan, the lender will still have some recourse with the collateral they hold on the property.

To meet this requirement, borrowers often must put down at least 25% as a down payment when buying, or maintain 25%-30% equity in the property if they already own it.

Lenders will want proof of adequate insurance on the property and a clear title to ensure no other liens or claims on it.


Income is a critical requirement for obtaining a commercial real estate (CRE) loan, as it demonstrates your capacity to repay the borrowed amount consistently. Lenders will examine the cash flow and various income sources, including rent, business profits, and other related revenue streams, to assess your personal and business financial situation.

By looking into your overall income, loan providers can analyze your financial stability and the viability of your current and potential revenues in covering your loan obligations.

CRE lenders will also evaluate key financial ratios, such as the debt-service coverage ratio (DSCR), to gauge the sufficiency of your income relative to loan payments. A diverse and robust income stream, backed by a strong DSCR, assures lenders of your financial prowess and ability to service the loan on time.


Credit indicates your financial health and reliability.

CRE lenders will assess both your business and personal credit scores to provide them with insights into your repayment history, outstanding debts, and overall creditworthiness.

A strong credit score demonstrates your capacity to manage amortizations and enhances your chances of securing favorable loan terms and interest rates.

In contrast, a weaker score may result in higher rates or even rejection of your application.

Commercial Property Loans vs. Consumer Loans

Commercial real estate loans differ from traditional mortgages in many respects.

Who They Are For

Unlike residential mortgages, which are generally extended to individual homebuyers, commercial real estate loans are tailored to meet the unique needs of businesses and investors.

Loan Terms and Interest Rates

Commercial property loans differ from residential real estate mortgages in terms of higher interest rates, and shorter repayment terms.

CRE loans have higher interest rates and shorter repayment terms, typically 5 to 20 years. Why? Commercial properties are higher-risk investments due to the potential for fluctuating market conditions and vacancy rates.

Lending Criteria

CRE borrowers must also meet certain lending criteria that may vary based on the financial institution or lender. These typically include having a solid credit history, demonstrated business expertise and experience, and sufficient collateral to secure the loan.

Down Payment

A commercial real estate loan’s down payment requirement is typically higher than a residential mortgage. Lenders typically require a down payment of 25% or more of the total property value. This mitigates their risk in case the borrower cannot repay the loan.

Sometimes, the lender may require the borrower to provide additional collateral, such as other real estate or business assets.

Payment Structure

Commercial loans often have a balloon payment structure—borrowers must make regular monthly payments for a set period before a lump sum, or “balloon,” payment is due at the end of the loan term.


When obtaining a commercial real estate loan, borrowers must demonstrate that the property will be used for business purposes. Many lenders require the owner to occupy at least 51% of the property for their business operations.

Underwriting Process

While residential loans are primarily assessed based on the borrower’s credit score and personal financial profile, commercial loan underwriting focuses more on the property’s profitability and ability to generate income to service the debt.

Lenders will typically analyze your property with factors such as occupancy rates, rental income, and the overall financial performance of the property—among other income-generating criteria—to determine the viability of the loan.

Discover the Blooma Advantage

Commercial real estate (CRE) underwriting can be tedious and time-consuming.

Blooma streamlines the underwriting process by using the power of Artificial Intelligence (AI) and Machine Learning (ML) to revolutionize this critical stage in CRE financing—so CRE professionals can focus on data-driven insights that bring tangible results.

Blooma’s Unparalleled AI-Driven CRE Solution

As the first fully digital CRE solution, Blooma’s platform leverages OCR technology, AI, and machine learning to automate deal pre-flight assessments and simplify the underwriting process. This transforms how CRE professionals handle deal assessments—no more laborious tasks or inefficient processes. 

Instead, Blooma enables a smarter, more effective approach to managing deals from inception to completion.

A Comprehensive Approach to CRE Portfolio Management

Blooma’s automated underwriting software not only improves the efficiency of origination but also extends its benefits to the entire portfolio management process. This comprehensive approach enhances the ability to manage and assess risk while optimizing growth opportunities in the CRE space.

Experience the Blooma Difference

Don’t miss your opportunity to benefit from Blooma’s innovative CRE underwriting and portfolio monitoring approach.

Take the first step toward a smarter, more efficient underwriting and lending experience.

Request a demo to discover how Blooma’s technology can elevate your CRE business.

More articles