Simple Guide to Commercial Real Estate Loans

Commercial Real Estate Loans: Your 2026 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.

 

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.

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).

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.

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.

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.”
• Include 5–10-year terms with balloon payments

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.

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.

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!

Frequently Asked Questions About Commercial Real Estate Loans:

What is a Commercial Real Estate Loan?

A commercial real estate (CRE) loan is financing used to buy, refinance, or renovate an income-producing or business-use property—like retail, office, industrial, or 5+ unit multifamily. CRE loans are underwritten more heavily on the property’s income and risk than a typical home mortgage.

What Credit Score Do I Need for a Commercial Real Estate Loan?

Many lenders use ~620 as a starting point, but the real decision often comes down to the strength of the deal (cash flow/DSCR, down payment, experience, reserves). Strong property income and liquidity can sometimes offset a weaker score depending on the program and property type.

How Much Down Payment is Required for a Commercial Real Estate Loan?

Down payments commonly fall in the 10%–30% range, depending on the loan type (SBA, bank, or private), the property, and the borrower profile. Conventional bank financing often lands higher than SBA options, while special-use properties may require more equity.

Can Small Businesses Get an SBA Loan for Commercial Real Estate?

Yes—SBA 7(a) and SBA 504 are popular for owner-occupied commercial properties (generally when the business occupies the required portion of the building). SBA loans are great for purchasing, refinancing, or sprucing up qualifying properties, and they typically offer longer repayment terms than most bank commercial real estate loans.

What is DSCR, and Why Does it Matter for Commercial Loans?

DSCR (Debt Service Coverage Ratio) measures whether the property’s income can cover the annual loan payments; lenders use it as a key “go/no-go” metric. A common target is around 1.25x or higher, though requirements vary by lender, market, and property risk.

What are Typical Interest Rates for Commercial Real Estate Loans?

Rates vary widely based on the lender, the property, DSCR/LTV, and whether the rate is fixed or floating. Many CRE loans are priced off an index (often SOFR) plus a margin/spread, so market conditions can move your rate materially.

Do Commercial Real Estate Loans have Balloon Payments?

Often, yes. Many CRE loans have shorter terms (e.g., 5–20 years) with longer amortizations, which can create a balloon balance due at maturity that you refinance or pay off.

What’s the Difference Between SBA 504 and SBA 7(a) for Buying Commercial Property?

Basically, SBA 504 is meant for big purchases like real estate or equipment that you’ll actually use for your business. It is commonly structured with a lender + CDC portion. At the same time, SBA 7(a) is more flexible and can include real estate, as well as working capital or business acquisitions. Your best fit depends on whether you need pure real estate financing or a broader funding package.

What is a Non-Recourse Commercial Real Estate Loan?

A non-recourse loan generally means the lender’s primary remedy in default is taking the property collateral, not pursuing your personal assets—as long as “carve-out” exceptions aren’t triggered. Non-recourse terms are more common in certain CRE segments and structures than in typical small-balance bank loans.

How Long Does it Take to Close a Commercial Real Estate Loan?

A common range is 60–90 days, but more complex deals (environmental, appraisal issues, entity docs, multiple tenants, construction, etc.) can run 120+ days. The fastest closings usually happen when borrower docs and property financials are clean and complete early.

This blog about “Simple Guide to Commercial Real Estate Loans” was updated on January 21st, 2026.