Commercial Real Estate Loan Terms: Everything You Need to Know

Are you renting the space where you run your business? If you’ve ever considered buying your own facility, you need to know about commercial real estate loans. Commercial real estate loans are for spaces like office buildings, warehouses, production facilities, strip malls, and more. These types of loans are typically a long-term investment with affordable monthly payments. If you are a business in a need to commercial real estate loan, read about the top types to decide which one is the best fit for your needs.

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SBA 7(a) Commercial Real Estate Loan

SBA 7(a) loans are the most popular loan program offered by the Small Business Administration. These loans are available up to $5 million and can be used to purchase, refinance, or renovate commercial property. Note that at least 51% of the property's square footage must be occupied by, and used by, your business.


SBA loans are generally known as the “gold standard” because of low rates and long terms. Business owners who want to purchase or refinance probably won’t be able to find a better deal.


Because SBA loans are backed by the federal government, they assume some of the risk. SBA lenders want to make sure business owners can make the payments for the life of the loan so additional paperwork may be required. This can make the time to funding longer than other options.

  • Interest Rates: For an SBA CRE loan from banks in the SmartBiz network, rates are 4.75% - 6.00% (Prime Rate plus 1.5% to 2.75%).

  • Typical Loan Term: 25 years with no balloon payment.
  • Difficulty Qualifying: One of the downsides to SBA loans is the time it takes for a lender to process and approve your loan. Companies like SmartBiz Loans have a streamlined process to help you with your application and match you to the bank most likely to fund.

SmartBiz Loans® recently worked with a small business to help them purchase an office building using a commercial real estate loan. Business owner Joel Sandoval was facing an issue many entrepreneurs dream of. The revenues and profits of his CPA firm had doubled over its three years in operation. But he had a problem. He was running out of space. Sandoval and his 2 assistants were working out of a 350 square foot office and needed much more room, especially during the busy tax season.

Sandoval considered simply renting a larger office but determined that a commercial real estate purchase could solve his space issues and help build equity in his business. Learn more about his company, his successful SBA commercial real estate loan experience, and plans for future growth: Sandoval Tax Business Story.

SBA CDC/504 commercial real estate loans

A 504 SBA loan might be a good fit for small business owners interested in purchasing a commercial real estate that fits with the public policy goals of the local Certified Development Corporation (CDC). Typically, up to 50% of project costs are funded by a lender backed by the SBA. CDCs typically fund up to 40% of the project cost. The final 10% is a cash down payment expected to come from the small business owner.


The pros include large loan amounts available, affordable interest rates. Through their tips and resources, the SBA tries to make it as easy as possible for small business owners to navigate the application process.


First, the small business must create one job, or retain an existing job, for every $65,000 they receive through the SBA 504 Loan. Additionally, there are usage restrictions. The loan cannot be used as working capital, only for specific purchases outlined by the SBA. Finally, a percentage of the loan must be covered by the applicant. That percentage is relatively low, but can be a large sum, depending on the total project cost.

  • Interest Rates: The Small Business Administration (SBA) sets the maximum interest rate banks can charge on CDC/504 loans. The maximum interest rate in 2020 depends on loan size and amount. Visit the SBA website for current rates.
  • Typical Loan Term: 20 years with no balloon payment
  • Difficulty Qualifying: You must have a credit score above 650 and run a profitable business at least two years old.

Bank commercial real estate loan

You can go straight to a bank for a CRE loan with less requirements than an SBA loan. Traditional commercial mortgages take between 30 – 45 days for approval and funding and are issued by traditional banks and lending institutions.


There is no maximum loan amount with a traditional commercial mortgage. This is because these mortgages aren’t backed by the federal government and overall loan amounts are up to individual lenders.


The qualifications for a traditional commercial mortgage are a little tougher than with a government-backed alternative. This is because the lender assumes the full risk. Additionally, terms are shorter than the terms for an SBA loan. This leads to larger monthly payments that can cut into cash flow.

  • Interest Rates: 5% - 7% (fixed or variable)
  • Typical Loan Terms: 5 – 10 years with a balloon payment
  • Difficulty Qualifying: You might have a problem finding a small loan size as they are not profitable for banks. Down payments may be larger because there is no SBA guarantee.

Commercial bridge real estate loan

Commercial bridge loans provide short-term CRE financing if you need to act quickly on a real estate opportunity. Bridge lenders provide loans with terms of six months to a year during which you make interest only payments. At the end, you either have to pay the entire balance of the loan or refinance with a long-term loan. For example, if you are outgrowing your retail space and another becomes available, you'll want to move quickly to secure a new space.


Fast funding – when approved for the loan, you’ll have access to that money almost right away, usually within one week. Another benefit is the loan term - these are short-term loans that are typically paid off within a year. Once you pay it off, you’re done with it. Another pro is that you can choose repayment options. The borrower decides if they want to pay off the loan before or after the long-term financing is in place. Not all lenders offer this option so check before you begin the process.


Commercial bridge real estate loans are more difficult to secure. Additionally, you’ll need exceptional credit and equity, and a low debt-to-income ratio. Bridge loans are also pricey with higher interest and transaction rates. If you don’t pay off in a timely manner, you’ll rack up interest quickly. When you take out a bridge loan, you’re counting on an influx of money to help you repay. If that transaction doesn’t happen, you can find yourself in hot water financially.

  • Interest Rates: 5% – 30%
  • Typical Loan Term: Usually available for a 6 month period but can extend up to 12 months.
  • Difficulty Qualifying: Qualifications vary from lender to lender.

Hard money commercial real estate loan terms

These loans are from non-bank lenders and are popular for small business owners who want to purchase or renovate real estate but can’t qualify for bank or SBA loans.


The process for these types of loans are fairly quick since you are working with one lender or a small group. Hard money lenders are not interested in your credit score or debt load. Lenders look at the asset backing the loan – the property. Taking out a hard-money loan and paying it back responsibly can help you establish a relationship with the lender, who may be more likely to work with you in the future.


Hard money loans have a much higher interest rate and processing fees than other commercial property loans. Another con are the short loan terms. Typical mortgages are 15 or 30 years. Hard money loans are often just a few months or a few years.

  • Interest Rates: 5% to 30%
  • Terms: 1 - 5 years
  • Difficulty Qualifying: Hard money lenders have lower qualification requirements and work faster than banks. The timeline for receiving your funds is usually 1 to 2 weeks, versus several months with a bank.

Final thoughts

Most commercial real estate loan lenders look at the following criteria before lending to a business owner. Here are elements considered:

The stronger your financial profile, the better rates and terms of the loan you can qualify for.