Simple Guide to Commercial Real Estate Loans

Commercial Real Estate Loans: Your 2025 Guide to Smart Investment Financing

Thinking about buying a rental building, retail store, or office space? You might need a commercial real estate loan to make it happen. Commercial real estate loans are built for business and investment properties, unlike home loans. In this guide, we’ll explain what they are, the types of loans you can get, and how to qualify for one with Gustan Cho Associates.

What Are Commercial Real Estate Loans?

Commercial real estate loans are essentially mortgages used for purchasing or refinancing various property types such as apartment complexes, office buildings, retail stores, warehouses, or mixed-use developments. These loans are meant for places that make money or are intended for business use. Unlike regular home loans, commercial real estate loans often focus more on how much income the property generates and its overall value rather than just your personal income or credit score. Sometimes, you might not even have to personally back the loan.

Recourse vs. Non-Recourse Loans

When looking into commercial real estate loans, it’s a good idea to know the difference between recourse and non-recourse loans. In the case of recourse loans, if you fail to repay the loan, the lender has the right to pursue your personal assets, such as your savings or possessions. This adds a layer of risk for borrowers.

If things don’t go well and you can’t make payments, the lender can only take the property itself, leaving your other assets, like your savings or home, out of it.

On the flip side, non-recourse loans are much friendlier for your personal finances. This makes non-recourse loans a safer bet for diving into commercial real estate. At Gustan Cho Associates, we offer both types of loans depending on your needs and the specifics of your deal.

What Types of Properties Need Commercial Real Estate Loans?

Here are the most common property types financed with commercial loans:

• Multifamily buildings with 5+ units
• Mixed-use buildings with both living and business space
• Retail strip malls and standalone stores
• Office buildings and business centers
• Industrial warehouses and distribution centers

If the building has 1 to 4 residential units and you live in one of them, you may still qualify for a residential loan. Otherwise, commercial real estate loans are the go-to option.

Common Types of Commercial Real Estate Loans

Let’s look at the most common kinds of loans for commercial real estate.

1. Traditional Commercial Mortgages

Traditional commercial mortgages are commonly used to borrow money to buy a business property. These are loans from banks or other lenders that help you pay for things like office buildings, stores, or warehouses. John Strange, a senior mortgage loan originator at Gustan Cho Associates says the following about commercial real estate mortgages:

You usually need to show that you have a good credit history to get these loans, which means you pay back your debts on time. You need to make a large down payment, usually between 25% and 30% of the property’s price.

This is the money you pay upfront before getting the loan. Plus, lenders want proof that the property can make money, like showing them the business plan or rent agreements. These steps help them feel confident that you can repay commercial real estate loans.

2. SBA Loans

Backed by the U.S. Small Business Administration, these loans are perfect for business owners who plan to use at least 51% of the property. There are two commonly used types of SBA loans:

• SBA 7(a) Loans: Flexible use, including buying or improving commercial property.
• SBA 504 Loans: These loans are meant specifically for fixed assets like real estate and equipment.

3. Bridge Loans

Need fast cash to buy or renovate a property before you qualify for a long-term loan? Bridge loans are short-term solutions—typically 12–24 months—that give you time to stabilize the property and refinance later.

At Gustan Cho Associates, our bridge loans are interest-only, easy to qualify for, and fund quickly with less paperwork.

4. Construction Loans

If you’re building a new commercial property from the ground up, a construction loan can help. These are short-term loans that cover materials, labor, and land costs. Once construction is finished, you can refinance into a traditional loan.

We even offer Spec Builder Loans for investors building 1–4 unit homes. These loans require 25% down on land and 100% construction financing if the value after completion is within 70% LTV.

5. Hard Money Loans

Hard money loans are a type of commercial real estate loans that can help investors who need money quickly or cannot get regular loans. These loans focus more on the value of the property rather than your credit score. They usually have terms that last one year, with payments that only cover the interest. Investors often need to pay a 25% to 30% down payment. Interest rates for these loans range from 10.99% to 15.99%. Hard money loans are useful for buying properties that need repairs, are being sold at auction, or do not currently earn income.

6. Commercial Line of Credit

If you own commercial real estate, you might need money for upgrades, repairs, or everyday costs. A commercial line of credit can help with this. This type of loan gives you access to flexible cash whenever needed. You only pay interest on the money you actually use, which is helpful for property owners. Whether you need to fix a leaky roof or buy new equipment, a commercial line of credit makes it easier to cover these ongoing expenses. It’s a smart choice for anyone managing commercial properties.

Loan Terms You Should Know

Most commercial real estate loans don’t follow the same rules as home loans. They typically:

• Have adjustable rates
• Are amortized over 20–30 years
• Include 5–10-year terms with balloon payments

The rate usually includes a margin + index (like SOFR or CMT). Once the fixed period ends, your rate adjusts yearly based on that index.

How Much Can You Borrow?

When looking for commercial real estate loans, lenders use Loan-to-Value (LTV) to determine how much money you can borrow. Most of the time, loans can be given for about 70% to 80% of the property’s value. You’ll need to use your money or get investors’ funds to cover the rest. Knowing how LTV works is important so you can plan your finances properly.

Qualifying for Commercial Real Estate Loans

Getting approved for commercial real estate loans depends on a few things:

• Property Income: Lenders look at the building’s rental income.
• Credit & Experience: Good credit helps, but your experience as an investor or business owner matters too.
• Down Payment: Expect to bring 20-30% to the table.
• Business Plan: A clear plan is a must for new projects or construction.

We can also help you build business credit to qualify for commercial lines of credit and unsecured business credit cards.

Why Work With Gustan Cho Associates?

We’re not just mortgage experts—we’re investors, too. Gustan Cho has managed over 3,000 rental units and knows what it takes to structure smart commercial real estate loans.

Whether buying your first strip mall or developing a mixed-use property, we’ll guide you every step of the way and tailor the financing to your deal.

We offer:

• Non-recourse loan options
• Fast closings on bridge and hard money loans
• Flexible construction and spec-builder loans
• Personalized loan planning with experts

Recent Updates in 2025 You Should Know

• Higher interest rates have tightened traditional lending, making alternative financing like hard money more popular.
• Retail and office space demand is shifting, with more conversions to mixed-use or flexible workspaces.
• SBA loans continue to be among the most effective financing options for small business owners because of their low down payment requirements and extended repayment terms.
• AI underwriting is speeding up approvals and reducing red tape for bridge and private lending.

Ready to Explore Your Options?

Whether you’re investing in a retail strip, building a 6-unit apartment, or converting an old office into a co-working space, we’ve got you covered. Commercial real estate loans don’t have to be complicated when you work with the right team.

Contact Gustan Cho Associates today to get matched with the best commercial loan program for your investment goals. Borrowers who need a five-star national mortgage company licensed in 52 states with no overlays and who are experts on commercial real estate loans, please contact us at 800-900-8569, text us for a faster response, or email us at gcho@gustancho.com. Get pre-qualified and start your investment journey today!

A Beginner’s Guide To Loans For Commercial Real Estate

Commercial real estate loan guide of different types (SBA 7(a), 504, bank, bridge, CMBS), conditions (DSCR), types (LTV), rates, fees, and the stepwise process to qualify.

Commercial Real Estate Loans for Small Business (Owner-Occupied)

Clear checklists, FAQs, and pro tips for investors and business owners.

• CRE loans can fund income-realizing and owner-occupied properties like stores, offices, multis, and self-storage.
• Your DSCR, property type and location, LTV, experience, and liquidity determine loan approval.
• The options include SBA 7(a) Loans, SBA 504 Loans, Bank/Portfolio Loans, bridge loans, CMBS loans, DSCR/NOI-driven loans, and Construction loans.
• 10%-35% down payment, 5-25 years for the loan, and an interest rate based on Treasury or SOFR.
• A clean retail lease, lease agreements, business operating statement, and detailed business strategy get you to the goal faster.

What Does a Commercial Real Estate Loan Entail?

A commercial real estate loan allows you to acquire, construct, enhance, or refinance a particular building intended for commercial activities or profit. For commercial real estate (CRE) loans, the income generated from the property (NOI) and the borrower’s credit reputation take precedence over the individual’s credit, unlike a typical mortgage.

Common Property Types Eligible For Commercial Real Estate (CRE) Loans

• “Multifamily Residences (5+ units).
• Self-storage Facilities and Warehouses.
• “Office and Medical Offices.
• “Industrial and Flex Spaces.
• Retail and Strip Centers.
• “Hospitality Ventures (Hotel/Motel).
• “Mixed-use Buildings and Other Special Purpose Real Estate.

Commercial Real Estate Loans (Choose the Best One)

For Real Estate & Business Expansion Use

• Best For: Owner-occupied buildings plus the facility and equipment.
• Highlights: Funds that account for almost 90% financing (eligibility required) and longer terms than a good chunk of the bank loans—flexible allocation of funds.
• Watch-Outs: More documentation, personal assurance, and SBA charges.

For Real estate and Fixed Equipment (Owner-occupied) is The Goal

• Structure: Bank (first lien) + CDC (second lien), as little as 10% down for qualified borrowers.
• Upside: Long CDC piece fixed terms. Rates are often competitive.
• Note: A Strong increase in job/community impact is helpful.  

Conventional Bank / Portfolio Commercial Mortgage

• Best For: Strong sponsors.
• Currently, cash-flowing, stable properties.
• Terms: 5-10 years fixed/floating with 20-25 amortization.
• Recourse is common.
• Upside: Relationship pricing is common, and decisions are made locally.
• Consider: More strict backing and underwriting criteria.   

DSCR / NOI-Driven Investment Property Loan

• Best For: Investment properties in which cash flow is the principal driver.
• Focus: 1.20x-1.35x (program-dependent) debt services coverage ratios (DSCR), collateralized leases, market-deployed vacancy, and expenses.
• Upside: Decisions made with no personal income considerations take less time.
• Consider: If the asset quality is borderline, there are significant spreads.  

Bridge Loan for Value Add & Fast Closes

• Best For: Relocation, lease-up, and light rehab. Short-term positioning (6-36 months) is needed.
• Upside: Flexibility and speed.
• Consider: Higher fees and rates with principal-only payments.  

Construction Loan for Ground Up or Major Renovations

• Best For: New constructions and significant redevelopments.
• Structure: Interest is charged only during construction, with a loan-to-cost (LTC) of 60-75%.
• Claim: Pre-lease target, or take out commitments.

CMBS (Commercial Mortgage-Backed Securities)

• Ideal For: Sponsors and properties with seasonal cash flow.
• Advantage: Longer fixed rates with no recourse.
• Evaluate: The rigidity of servicing and prepaid penalties (yield maintenance/defeasance).

Core Underwriting Metrics You Need to Understand  

Debt Service Coverage Ratio (DSCR): The Gatekeeper  

Calculation:

• DSCR = NOI ÷ Annual Debt Service
• NOI: Gross revenue minus vacancy minus operating expenses (excluding service debt, capitalized expenses, and depreciation).  
• Typical Targets: 1.20x to 1.35x (1.35x and over for riskier markets and assets).
• Note: Rent, reducible expenses, or a down payment on the loan amount can increase the Payable loan DSCR.

LTV & LTC  

• Loan-to-Value LTV relates the loan amount to the as-is or stabilized value (the most common loan is capped between 60% and 80%).
• LTC relates to the loan against the total project cost (construction, soft costs, and contingency).  

Guidelines for Net Worth & Liquidity  

• As a general rule, the maximum loan amount is based on net worth and monthly payment liquidity post closing, 6–12 months’ payment (this varies).
• More experience is better.
• Previous ownership, construction, and or management experience is a plus.

Owner-Occupied vs. Investment: Why It Matters  

• When discussing “Owner-Occupied Commercial Mortgage, ” you use 51%+ of the space.”
• Here, the SBA 7(a) and 504 loans shine with low down payments and longer-term loans.
• “Investment Property Loan (Non-Owner Occupied)” is “Underwritten on Rent Roll and DSCR.”
• Here, loans have higher down payments, and the terms depend on the cash flow quality.  

Owner-Occupied Mortgage Commercial Rates & Terms: What Drives Pricing  

• Index:  Common ones are Treasuries and SOFR.
• Spread: Asset class, DSCR, LTV, marketing, sponsor strength, and loan size.
• Fixed vs Floating: Fixed is for less variable or more security, and floating is for more flexibility or shorter holds.
• Amortization can last 20-30 years, with interest-only periods on bridges or value adds possible.
• “Tip: Don’t chase the ‘lowest rate.’  
• ‘Total Loan Economics’ dictates more, along with a 10-25 bps difference in the rate.”  

Owner-Occupied Commercial Mortgage Financing: How To Get A Commercial Loan For Real Estate Approved  

Define Strategy & Exit  

• What are the value adds for? Buy/hold, or build to sell?
• Work on the DSCR, LTV, and realistic timelines.

Gather the Right Docs (Start Early)

• Previous 2-3 years’ business and statutory tax returns (if applicable).
• Current year P&L and balance sheet.
• Lease agreement, T-12 statement, and supporting leases.
• Borrower’s business profile, descriptor of the REO, and corporate documents.
• Purchase agreement, valuation, environmental assessment, and condition of the property report (upon request).

Pre-Underwrite Your Deal

• Forecast stabilized NOI, DSCR, and value.
• Assess market rent, vacancy, and cap rates.

Match the Loan Type to the Business Plan

• Approximate the bank/portfolio and CMBS options.
• Lease up or rehab? Bridge.
• Growth for the owner? SBA 7(a) or 504.

Optimize Terms

• Evaluate rate index, spread, Amortization, recourse, fees, prepayment, and term.
• For rate and vacancy dips, use the stress-test DSCR.

Close Cleanly

• Quickly address conditions.
• Organized insurance, corporate documents, and 3rd party reports.

Executive Summary & Budget Use Plan.

• Rent Roll plus T-12 Income Analysis Summary.
• Lease Documents & Estoppel Certificates.
• Individual and Corporate Tax Returns (Last 2-3 Years).
• Year-to-Date Income Statement and Balance Sheet.
• Company Formation Documents (LLC/LP/Corp) and Organizational Chart.
• Purchase Agreement or Payoff Statement (Refinance).
• Appraisal, Phase 1 Environmental Site Assessment, and Property Condition Review.
• Construction Contractor Schedule and Budget.
• Down Payment and Reserve Funds.

Down Payment, Fees & Closing Costs (Things To Note Before Signing)

• Down Payment: 10%—35% of the selling price, depending on the product and property type.
• Loan Origination and Lender Charges: 0.5% – 2% or more of the loan amount.
• Independent Reports: Appraisal, Environmental Studies, Surveying, and Engineering.
• Legal and Title Charges: Attorneys, title insurance, and recording fees.
• Early Redemption: Yield maintenance, defeasance, or step down.
• Best to understand these in advance.

Pros and Cons of Commercial Real Estate Loans  

Pros  

• Expansion leverage.
• Potential (check with your advisor) tax relief.
• Stability of fixed long-term options.
• Non-recourse is possible (CMBS/agency select cases).

Cons

• Residential with a higher down payment.
• Additional paperwork and third-party reports.
• Significant prepayment penalties.
• Market/tenant risks may affect DSCR and covenants.

Buy & Hold a Stabilized Property  

• Look for bank/portfolio or CMBS with a fixed rate and Amortization for 25 years.
• Secure prepayment terms for your desired timeframe.  

Value-Add / Reposition  

• Use a bridge loan to cover cap-ex and lease-up expenses.
• Then refi into long-term debt once stabilized.  

Owner-Occupied Expansion  

• SBA 504 for low down payment and long fixed CDC terms.
• Or SBA 7(a) for combined functions (enhancements plus working capital).  

Ground-Up Construction  

Construction loan with LTC focus; also streamlining take-out conditional approval to minimize exit risk.  

Commercial Real Estate Financing Questions and Answers  

What DSCR Do I Need For a Commercial Real Estate Loan?

• The majority of lenders ask for 1.20x–1.35x.
• Assets or markets with greater risk may require more.

How Much is a Down Payment on a Commercial Mortgage?

• Prepare for a down payment between’10 % and 35%’.
• Owner-occupied deals can be lower with SBA financing.  

What Credit Score is Needed For Commercial Real Estate Loans?

• Every number is different.
• A strong DSCR, liquidity, and experience can offset a low score, and top-tier sponsors get better pricing and terms.  

How Long Does it Take to Close a Commercial Loan?

• It can take anywhere between 30 and 90+ days to process a document completely, depending on its complexity, the reports available, and the responsiveness of the parties involved.  

Is it Possible to Obtain a Non-Recourse Commercial Loan?

• It is possible.
• CMBS and certain programs provide non-recourse loans with standard carve-outs.  

What is the Difference Between LTV and LTC?

• LTV is the loan to the property value, and LTC is the loan on the total cost of a project, construction-related.  

Is There a Difference Between Fixed and Variable Commercial Mortgage Rates?

• Both exist.
• Many loans are priced off Treasuries and SOFR, plus a spread.  

Which Documents are Most Likely To Slow Down The Deals?

• Undefined rent rolls, leases, T-12s, and delayed reports from third parties are the most likely causes of delays.  

Am I Able to Finance Tenant Improvements (TIs) and Leasing Costs?

• This is often possible with a bridge, construction, or SBA value-add approach.  

Is Multifamily (5 plus) With Five or More Units? Regarded as Commercial?

• Yes, it is.
• Multifamily with five or more units is regarded as commercial and is underwritten as such, benefiting from a DSCR focus.

Mistakes to Avoid (Save Time & Money)

• Ignoring prepayment penalties not considering prepayment penalties can erase savings from a resale, which is a sad reality.
• Failing to estimate rents accurately is equally matched by failing to estimate operational costs accurately.
• This is bad for your DSCR.
• Skipping environmental due diligence for many assets, phase 1 ESA is essential.
• Undercapitalizing reserves for vacancies, cap-ex, and shocks.
• Focusing on the rate is secondary to the terms of the deal.

Suggested Glossary for Comprehensive Understanding of a Commercial Mortgage

• NOI: Total income after subtracting costs for vacancies and managing the property.
• DSCR: Debt service coverage ratio (NOI ÷ debt service).
• LTV/LTC: Size of the loan compared to the property value or the cost.
• Cap Rate: Market yield equivalent, NOI ÷ value.
• Recourse Lien:  Personal guarantee vs non-recourse limit on pledge of asset.
• Defeasance: Various prepayment methods/penalties on fixed-rate debt.
• Estoppel: Lease terms confirmation by a third-party tenant.

Frequently Asked Questions About Commercial Real Estate Loans:

What Are Commercial Real Estate Loans?

• Commercial real estate loans are loans you use to buy or refinance buildings like apartment complexes, retail stores, or office buildings.
• These properties are meant to make money or be used for business.

Can I Get Commercial Real Estate Loans With Bad Credit?

• Yes, it’s possible.
• Some lenders, like Gustan Cho Associates, offer options like hard money loans that look more at the property’s value than your credit score.

What’s The Difference Between Commercial Real Estate Loans and Home Loans?

• Home loans are for personal homes, while commercial real estate loans are for investment or business properties.
• Commercial loans also look at how much income the property generates.

How Much do I Need for a Down Payment on Commercial Real Estate Loans?

• Most commercial real estate loans require a 20% to 30% down payment of the property’s value.
• Some loans, like SBA loans, may allow for a lower down payment.

What Types of Properties Can I Buy with Commercial Real Estate Loans?

• Commercial real estate loans can be used for apartment buildings (5+ units), retail spaces, warehouses, office buildings, and mixed-use buildings that combine living and business space.

What Are Non-Recourse Commercial Real Estate Loans?

• Non-recourse commercial real estate loans protect your personal assets.
• If you can’t pay the loan, the lender can only take the property, not your savings or other belongings.

How Long are Commercial Real Estate Loans?

• Commercial real estate loans usually last between 5 and 30 years.
• Many have balloon payments after 5 to 10 years or adjustable interest rates after a fixed period.

Can I Get a Loan to Build a Commercial Property from Scratch?

• Yes.
• Construction and spec-builder loans are commercial real estate loans that help pay for land, materials, and building costs from the ground up.

What’s a Hard Money Loan in Commercial Real Estate?

• Hard money loans are short-term loans used to buy or fix up a property quickly.
• These commercial real estate loans are based on the property’s value and usually close quickly.

How Do I Apply For Commercial Real Estate Loans with Gustan Cho Associates?

• Call, text, or email Gustan Cho Associates to get started.
• We’ll help you choose the best commercial real estate loan based on your goals, property type, and budget.

This blog about “Simple Guide to Commercial Real Estate Loans” was updated on October 16, 2025.

Gustan Cho Associates provides commercial real estate loans for Investors and business owners, from SBA 7(a)/504 to bank, bridge, construction, DSCR/NOI-driven loans, and CMBS options.

Call us at 800-900-8569 or complete the online form to begin the pre-qualification process for your commercial loan. We will assess your DSCR, LTV/LTC, liquidity, experience, and market and put you into the best fit structure for speed, certainty, and long-term savings.  Get in touch today to discuss how you can qualify for this type of financing.