Commercial Real Estate Loans

Commercial real estate loans offer a lump sum of capital that you repay over a set period. They often come with higher interest rates than mortgages and consumer residential loans, and they may require a larger down payment.


These loans are typically offered to business entities, such as corporations, developers, partnerships, funds, and trusts. Lenders consider your personal credit score, financial history and business plan when assessing you for this financing option.

Interest Rates

The interest rates associated with commercial real estate loans vary depending on the type of loan and property. However, generally speaking, these rates are higher than those of residential loans. Furthermore, commercial real estate loans often involve a variety of fees that can increase the overall cost of the loan.

To determine the appropriate rate for a given project, lenders look at several factors, including a property’s net operating income (NOI) and its annual mortgage debt service coverage ratio (DSCR). The DSCR is calculated by dividing NOI by a property’s total annual debt payments, and it helps lenders identify whether a property has sufficient cash flow to service the loan. Lenders typically aim for a DSCR of at least 1.25.

In addition, when calculating interest rates for a commercial loan, lenders consider a borrower’s personal creditworthiness. A high personal credit score, a well-established business, and a clean business history are all important considerations for securing a low commercial loan rate.

Nav offers an assortment of business financing options, including commercial loans and commercial real estate loans. To receive personalized loan options for your business, create a Nav account and connect your business data.


Commercial real estate loans require a higher level of qualification than personal mortgages. As such, it’s important to understand the requirements before you apply. This will help you avoid delays and potentially costly mistakes.

The lender will evaluate your credit history and business stability. They’ll also want to see if your business has the capacity to repay the loan. This is why it’s important to prepare by gathering all the necessary documents. Typical documentation includes a corporate or business registration, certified financial statements and tax returns.

Another factor that will influence the loan is your business’s ability to meet its operating expenses. Lenders typically look at a debt-service coverage ratio (DSCR), which measures the amount of annual net operating income generated by a property versus its annual mortgage debt service. A DSCR of 1.25 or greater is a common requirement.

In general, a commercial real estate loan is only available to a business that will use the property as its primary place of business. You can lease out some of the space, but a lender will usually require that your small business will occupy at least 51 percent of the property. Otherwise, you’ll need to apply for a different type of loan.


Commercial real estate loans, like other forms of financing for a small business, work by leveraging property as collateral. This means that your lender will have a legal claim on the property until you pay off your debts or default on your loan. If this happens, your lender can sell the property to recover their losses.

For investors, these loans can be a great way to leverage a real estate investment for a business or family project. However, it’s important to understand the tax ramifications of these types of financing options.

Unlike consumer mortgages, which are typically issued for terms of up to 30 years, most commercial real estate loans have shorter terms and amortization periods. These loans can also leave borrowers with a large “balloon payment” at the end of their term, which they’ll have to pay off or refinance.

Many lenders will review a property’s tax history and use it as a factor in their underwriting process. In addition, they may look at a borrower’s business financials and cash flow to determine their ability to service the debt. This is commonly referred to as a Debt Service Coverage Ratio (DSCR), which compares a property’s annual net operating income to its annual mortgage debt payments.

The DSCR is an important measure because it helps lenders determine the likelihood that the property will be able to repay its debt. The higher the DSCR, the less risky a loan will be for the lender.


Unlike traditional residential mortgages, commercial real estate loans are used to finance income-producing property, such as office buildings and shopping centers. Because of this, lenders consider commercial property investments riskier than residential properties, and they often require more financial documentation from borrowers to ensure they can make the necessary payments. They also look at the debt-service coverage ratio (DSCR), which is calculated by dividing a property’s annual net operating income by its annual mortgage payment.

Because of these differences, it’s important to do your research on lenders before applying for a commercial real estate loan. Look at their rates, qualification requirements and other factors to determine which one will work best for you. Additionally, consider using a marketplace to streamline the process and save time. These platforms connect you with multiple lenders who can review your application and provide financing within days.

There are several types of commercial real estate loans available, including conventional bank loans, online lenders, hard money lenders and SBA loans. Conventional bank loans are the most common option and are available to individuals with strong credit histories. These loans are typically secured by a lien on the property, meaning the lender can seize the property if you default. However, this type of loan is usually limited in size and typically requires a 20 percent down payment.