TheCompleteGuidetoCommercialRealEstateFinancing

Commercial real estate financing is not a single product but a spectrum of options, each designed for different property types, borrower profiles, and investment strategies. Understanding the landscape before you begin shopping for a loan will help you identify the right fit and avoid costly mismatches between your deal and your financing structure.

Traditional commercial mortgages from banks and credit unions offer the most straightforward path for borrowers with strong credit, substantial down payments, and stabilized properties. These loans typically carry fixed or adjustable rates, terms of 5 to 20 years, and amortization schedules of 20 to 25 years. They work best for owner-occupied properties and established investors with proven track records.

For businesses that occupy their own property, SBA 504 loans offer an exceptionally attractive structure with below-market rates and down payments as low as 10 percent. Bridge loans, hard money loans, and commercial lines of credit fill in the gaps for borrowers who need speed, are purchasing value-add properties, or are in situations where traditional financing is not available.

If your business occupies or will occupy at least 51 percent of the property you are purchasing, the SBA 504 program is likely your best financing option. The 504 structure splits the financing three ways: a conventional lender provides roughly 50 percent, a Certified Development Company (CDC) provides up to 40 percent backed by the SBA, and the borrower contributes a down payment of just 10 percent.

The CDC portion carries a below-market fixed rate for the full loan term, which can extend up to 25 years for real estate. This means a significant portion of your debt carries one of the lowest interest rates available in commercial lending, with the certainty of fixed payments for the life of the loan. For businesses planning to own and operate from the same location for years, this predictability is enormously valuable.

SBA 504 loans can be used for purchasing land and existing buildings, constructing new facilities, renovating or modernizing existing properties, and purchasing major fixed assets like heavy equipment. They cannot be used for working capital, inventory, or investment properties where the business is not the primary occupant.

Two metrics dominate commercial real estate underwriting: Loan-to-Value (LTV) and Debt Service Coverage Ratio (DSCR). Understanding these ratios before you apply will help you assess your likelihood of approval and structure your deal for the strongest possible presentation to lenders.

LTV measures the loan amount as a percentage of the property’s appraised value. A property valued at 1 million dollars with a 750,000 dollar loan has a 75 percent LTV. Most conventional CRE lenders cap LTV at 65 to 80 percent, meaning you need a down payment of 20 to 35 percent. The SBA 504 program is an exception, allowing up to 90 percent LTV, which is one of its primary advantages.

DSCR measures your ability to service the debt from the income the property generates or your business produces. It is calculated by dividing annual net operating income by total annual debt payments. A DSCR of 1.25 means the property or business generates 25 percent more income than needed to cover the loan payments. Most lenders require a minimum DSCR of 1.20 to 1.35.

Commercial real estate loans involve more documentation and due diligence than standard business financing. Being prepared before you begin the process will save time and demonstrate to lenders that you are a serious, organized borrower. Most CRE lenders follow a structured process from initial inquiry through closing.

The documentation package for a CRE loan typically includes personal and business tax returns for two to three years, a personal financial statement, current business financial statements, a rent roll or operating statement for the property, the purchase contract, and a business plan describing how the property will be used. Having these ready before your first lender conversation accelerates the entire timeline.

Due diligence on the property side includes a commercial appraisal, a Phase I environmental site assessment, a title search, a property survey, and a building inspection. Your lender will coordinate most of these, but they add time and cost to the process. Budget 30 to 90 days from application to closing for conventional and SBA loans, and 2 to 4 weeks for bridge financing.

Commercial real estate deals often benefit from a layered capital approach rather than relying on a single lender. At CCAP, we help borrowers structure their capital stack by combining products from our lender network to optimize for total cost, leverage, and speed. This might mean pairing an SBA 504 loan for the primary financing with a bridge loan to cover renovation costs, or combining a conventional mortgage with an asset-based facility for working capital.

Our experience with CRE financing means we understand what different lenders are looking for and can position your deal accordingly. Some lenders specialize in specific property types like multifamily, retail, or industrial. Others focus on particular deal sizes or geographic markets. Matching your deal to the right lender from the start avoids wasted time and increases your chances of approval at favorable terms.

The process begins with a comprehensive deal review where we evaluate the property, your financial profile, and your objectives. From there, we present a recommended financing structure along with alternative approaches so you can make an informed decision. Whether you are purchasing your first commercial property or expanding an existing portfolio, our team handles the complexity so you can focus on the investment itself.