Best Commercial Real Estate Loans to Consider in 2023

In this review we highlight the terms, rates and fees of each commercial real estate lender, and explain what makes them a good option. We also share potential downsides of each lender, and provide a rating methodology you can use to select the best option for your needs.

A commercial real estate loan is a loan that uses your commercial property as collateral, similar to a mortgage on a residential property. Because the property is collateral, interest rates are much lower than with other types of small business financing. Our team of financial experts reviewed and ranked the top business lenders to help you get funded.

How to Choose the Best Commercial Real Estate Loans

Our experts use the following factors to rank commercial real estate lenders:

• Loan Features: Know the loan terms, repayment options, if there’s a prepayment penalty, and the minimum and maximum loan amounts.
• Application process - Look at the invasiveness of application information requirements, if there is a hard-pull or soft-pull credit score impact, funding time, and any distinctively competitive offerings.
• Interest rates and fees - What fees does the lender charge? Are there origination fees or points? Is the rate competitive to other commercial real estate lenders? 
• Qualification process - Know what you and your business need in order to qualify for a loan. The lender will look at your credit score, amount of time in business, and annual revenue, among other things.
• Customer support - You need customer support who works when you do. Find out if there is a live rep, an online chat support option, and what other support channels they offer. Check out any additional offerings such as webinars, frequently asked questions, and supplemental tools.
• Online user reviews - Check out reviews on independent review sites like Trustpilot to see what customers really think of the company’s commercial loan products. Read positive and negative reviews and look for patterns for what the lender does right and what they could improve on.
• Perks and Bonuses - Consider what extras the lender offers that will be useful for your business. They may include payment flexibility, advanced technology, discounts at select vendors, or a networking platform.

Main Features of the Best Commercial Real Estate Loans

What Are Commercial Real Estate Loans?

A commercial real estate loan, also known as a commercial mortgage, is used by businesses to purchase a specific property, land, or to cover building renovations. Buildings that can be purchased with commercial real estate loans include office spaces, apartment complexes, warehouses, and retail spaces.

The loan-to-value ratio is usually around 65% - 80%, meaning organizations are expected to cover 20% - 35% of the property purchase while the lender will cover the rest. This type of lending usually has quite high barriers to entry and borrowers will be expected to have a good credit score, evidence of good income, and to have been in operation for a number of years.

If you’re looking to invest in a personal property, such as a single-family rental home or an Airbnb, you’ll need to use a traditional consumer loan. Here are the top lenders for Airbnb loans, which can also be used for other long-term investment properties.

How Do Commercial Real Estate Loans Work?

While similar in nature, there are several key differences between traditional consumer mortgages and commercial real estate loans.

• Rates - Interest rates usually tend to be a little higher when taking out a commercial real estate loan. This is because the lender is shouldering a little more risk and values are usually, but not always, higher than you’d find with consumer options.
• Collateral - This is the asset that will be used to secure your loan. In most consumer mortgages this will be the house or property itself. However, in commercial real estate loans, borrowers may use any asset of value to secure the funding.
• Terms - Consumer mortgages tend to have 30-year repayment terms, while commercial real estate options are generally shorter, ranging from 10 to 25 years.
• Down payments - Expect to pay significantly more of a downpayment on a commercial real estate loan. It’s rare to find a lender that doesn’t require a 20% deposit at the very least

8 Steps you need to take to purchase commercial real estate

Types of Commercial Real Estate Loan

There are many different types of commercial real estate loans, including:

• Bridge loans  - This is a type of short-term loan where you borrow against part of the value of an existing property. Typically, they are used when you need to purchase a property but are waiting on the funds from the sale of another one.
• Hard money loans - Hard money loans provide cash quickly but for a short amount of time. These types of loans may be used when flipping a house, but they do typically come with very high interest rates.
• SBA 504 loans - Backed by the Small Business Administration (SBA), these loans are guaranteed by the federal government and are a low-risk type of commercial real estate lending. 504 loans offer fixed rates and loan amounts up to $5 million.
• Long-term fixed interest loan - This is the most common type of real estate loan and the one most similar to traditional consumer mortgages. These can take several months to arrange, but have the best interest rates and longest repayment terms.

Commercial Real Estate Loan Requirements

While requirements for commercial real estate loans will vary by lender, we recommend taking a look at the following recommendations:

• Good credit: First and foremost, real estate loan providers ideally want to see a good credit score – the higher the better. Your score will have a direct impact on your rate, so try to improve your score prior to applying.
• Solid down payment: Your chances of being approved for a commercial real estate loan accelerate with a decent down payment on a commercial property. A down payment of 20% or more of the total loan can boost your chances of loan approval. Like with credit scores, the more cash you include in a down payment, the higher your chances of loan approval.
• Know what the lender expects from your business: When filling out a commercial real estate loan application, expect to include pertinent information on your business, such as:
  • How long your business has been in existence (two years or more may be expected by a lender.)
  • The value of any collateral you may put up to secure a loan (such as business equipment, vehicles, or personal collateral)
  • Your company’s debt-to-income ratio (the lower your debt amount and the higher your annual income, the better.)
  • Total annual revenues. Commercial real estate lenders expect to see a history of solid annual revenues before green-lighting your property loan.

Cover the above areas and you’re well on your way to receiving a good commercial real estate loan.

Commercial Mortgage Loan Rates

Interest rates for commercial real estate loans tend to be a little lower than other types of small business lending. This is because the lender will often use the property itself as collateral, meaning there’s a much lower borrowing risk to the lender.

That being said, there can still be a huge variation between different platforms, and factors like your credit score, business history, and overall financial health will all play a role in determining what rate you’ll pay.

Typically, rates vary between 6% and 18% depending on your personal circumstances and the size of your loan. Borrowing amounts often max out at around $5 million, and repayment terms will be between 10 and 25 years.

How to Get Commercial Real Estate Loans

• Plan how you’ll use the loan - Most lenders will want to see a business plan and how you intend to make money from your property purchase. Whether this is to be used as a source of rental income or it’s for a business expansion, you’ll need to prove profitability to be approved
• Choose your loan type - Are you in this for the long haul or do you need an emergency injection of cash? Remember, long-term loans take a while to arrange while risker types of commercial borrowing, like bridging loans, can be funded very quickly
• Choose lender - Have a look at the lenders on our list and see if you meet the eligibility criteria. Most of our approved lenders welcome applications from all businesses, but some might have stricter criteria, such as length in business or hefty income requirements.
• Prepare your documentation - You’ll need more documents here than you would with other loan types. Common documents include: business plan, financial statements, current lease information, legal documentationBusiness and personal tax returns, a government-issued ID.

Commercial Real Estate Pros and Cons

Pros

• Good rates - Most commercial property loans have great rates and it's rare to see interest reach double digits. Plus, taking out a long-term fixed option will give you financial certainty and help you budget your business expenses.
• Good business opportunity - Purchasing real estate is usually a sure-fire investment as property values are more likely to go up than down. Rental income can be a secure and stable form of income and purchasing new premises for your business can accelerate growth and revenue.
• Long repayment terms - Unlike other forms of small business loans that usually max out at five years, you’ll find commercial property options that allow terms of 10 years and beyond.
• More room for negotiation - Since you’ll usually be borrowing quite a significant amount, there’s a little more wiggle room for negotiating rates and terms with the lender than with other types of borrowing. Plus, providers will be more willing to take other factors into account rather than relying on just a credit score.

Cons

• Expensive down payments - You’ll need to put down a significant portion of the property cost to secure the loan, usually 20% or more. This tends to exclude smaller businesses.
• Not open to new investors - Startups generally won’t be able to apply. This can put many brand new businesses in a situation where they need property to get going but can’t find the funding to do it.

Final Thoughts

For any business that's looking to get an investment property or needs new premises for expansion purposes, we’d highly recommend a commercial real estate loan. We’d advise trying to secure long-term funding, as those come with the best rates and repayment terms.

As long as you’re confident you’ll be able to keep up with the repayments, it’s a relatively low-risk type of lending. However, be aware that you’ll need to put down some significant capital upfront to get started.