Ultimate Guide to Commercial Real Estate Loans

Last Updated: April 2026

Commercial Real Estate Mortgage Rates

Loan Product	Rate Range (2026)	Typical Term
HUD/FHA Multifamily	5.00% – 6.00%	35 years
Agency (Fannie/Freddie)	5.30% – 6.50%	5–30 years
Life Insurance Company	5.25% – 7.50%	10–25 years
SBA 504 (CDC portion)	5.85% – 6.25%	20–25 years
CMBS / Conduit	5.75% – 8.00%	5–10 years
Bank / Portfolio	6.00% – 8.75%	5–10 years
SBA 7(a)	9.75% – 10.25% (variable)	Up to 25 years
Bridge	7.00% – 12.00%	6–36 months
Hard Money	8.00% – 15.00%	6–24 months
Mezzanine	10.00% – 18.00%	1–10 years

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How Do Commercial Real Estate Loans Work?

The CRE loan process first begins with a loan application, which is then followed by a loan underwriting process. During loan underwriting, the lender will review the loan application and supporting documentation to determine whether the loan meets its guidelines.

Assuming the loan is approved, the lender will issue a loan commitment letter. The loan commitment letter outlines the terms and conditions of the loan. The borrower will then have a certain amount of time to close the loan. At closing, the borrower has to provide the lender with specific documentation, including a promissory note, deed of trust, and loan agreement. 

They’ll also be responsible for paying closing costs. Once the loan closes, the borrower will make monthly payments to the lender, typically including the loan interest, principal, and escrow payments. The borrower is also responsible for paying any property taxes or commercial property insurance costs.

Commercial Real Estate Loan Types

Conventional Bank Loans

Traditional commercial mortgages originated by national, regional, or community banks and held on the bank’s own balance sheet (portfolio loans). Bank CRE loans offer the most flexibility in structuring — banks can customize terms, amortization, interest-only periods, and prepayment provisions to fit specific deals. The trade-off is typically recourse (personal guarantee required), shorter terms (5–10 years with balloon payments), and rates that may be higher than agency or CMBS products. Strong banking relationships unlock preferred pricing and terms. In 2026, bank CRE rates range from approximately 6.00% to 8.75% depending on the property type, borrower strength, and market. Minimum loan amounts vary but many banks start at $500,000–$1 million.

CMBS (Conduit) Loans

Commercial mortgage-backed securities loans are originated by conduit lenders, then pooled with other commercial loans and securitized into bonds sold to investors on the secondary market. CMBS loans offer non-recourse financing, competitive fixed rates (5.75–8.00% in 2026), and standardized terms — but with rigid structures. Prepayment penalties are severe (defeasance or yield maintenance), loan modifications after closing are nearly impossible (because the loan is governed by pooling and servicing agreements), and underwriting is formula-driven with limited negotiation. Typical CMBS parameters: 5–10 year terms, 25–30 year amortization, 65–75% LTV, 1.25 DSCR minimum, and loan amounts starting at $2 million+. Best for stabilized properties with strong NOI that the borrower plans to hold through the full loan term.

SBA 504 Loans

The Small Business Administration’s 504 program is the most affordable financing option for owner-occupied commercial properties. The unique three-party structure combines a bank first mortgage (50% of project cost), a Certified Development Company (CDC) second mortgage (40%), and borrower equity (10%) — creating a blended rate significantly below conventional commercial pricing. In 2026, SBA 504 fixed rates run approximately 5.85–6.25% for 20–25 year terms. The borrower’s business must occupy at least 51% of the property (60% for new construction). Maximum debenture amount is $5.5 million, with no cap on the total project cost. SBA 504 loans are not available for pure investment properties (non-owner-occupied). Best for small business owners purchasing their own commercial facility.

SBA 7(a) Loans

The SBA’s primary general-purpose loan program, available for commercial real estate (with 51%+ owner-occupancy), equipment, working capital, and business acquisition. SBA 7(a) loans offer more flexibility than 504 in how funds are used but carry variable rates (tied to prime + spread, currently 9.75–10.25% in 2026 for CRE). Maximum loan amount is $5 million. Terms for CRE are up to 25 years. The higher rates compared to 504 make 7(a) less attractive for pure real estate acquisition but useful when the borrower needs combined real estate and working capital/equipment financing in a single loan.

Agency Loans (Fannie Mae / Freddie Mac)

Agency loans — Fannie Mae DUS and Freddie Mac Optigo — are the gold standard for multifamily (apartment) financing. They offer non-recourse structures, the lowest fixed rates in the commercial market (starting as low as 5.30% in 2026), up to 80% LTV, terms from 5 to 30 years, and full amortization. Agency loans are available exclusively for multifamily properties (5+ units, primarily residential). They are not available for office, retail, industrial, hospitality, or other non-residential commercial property types.

Life Insurance Company Loans

Life insurance companies (MetLife, Prudential, New York Life, etc.) are among the most conservative — and cheapest — commercial lenders. Life company loans offer the lowest rates in the market (5.25–7.50% in 2026), long terms (10–25 years), and non-recourse or limited-recourse structures. The trade-off is strict quality requirements: low LTV (60–70%), Class A/B properties in primary markets, strong sponsorship with substantial net worth and experience, and high minimum loan amounts ($5 million+). Life companies are selective about property type — they favor stabilized multifamily, Class A office with credit tenants, industrial/logistics, and anchored retail. They generally avoid hospitality, secondary/tertiary markets, and value-add situations.

Bridge Loans

Short-term (6–36 months) financing for transitional commercial properties — acquisitions that need lease-up, renovation, repositioning, or stabilization before they qualify for permanent financing. Bridge rates run 7–12% with 1–3 points origination and interest-only payments. The exit strategy is refinance into permanent financing (bank, CMBS, or agency) after the property reaches stabilized occupancy and NOI. Bridge loans are available for all commercial property types and are the primary tool for value-add commercial investment strategies. Minimum loan amounts are typically $500,000 to $1 million.

Hard Money Loans

The most aggressive short-term financing option — rates of 8–15%+, terms of 6–24 months, and the fastest closings (5–14 days). Hard money lenders evaluate the property’s value and the deal’s potential rather than the borrower’s credentials. Used when speed is critical, the property is in too poor condition for other lenders, or the borrower can’t qualify conventionally.

Mezzanine Financing

A subordinate debt layer positioned between the senior mortgage and the borrower’s equity in the capital stack. Mezzanine loans are secured by an ownership pledge in the borrowing entity (not by the property directly), allowing them to be placed without the senior lender’s consent in some structures. Rates are high (10–18%) reflecting the elevated risk position. Mezzanine financing is used when the senior mortgage doesn’t provide enough leverage and the borrower needs additional capital beyond what the first mortgage covers — effectively reducing the equity requirement from 25–35% to 10–15%. Common in larger commercial transactions ($5 million+ total capitalization) and syndicated deals.

HUD/FHA Multifamily Loans

The Department of Housing and Urban Development offers commercial mortgage insurance through several FHA programs — the 223(f) for acquisition/refinance, the 221(d)(4) for new construction/substantial rehab, and the 232 for healthcare facilities. HUD loans offer the best terms available: non-recourse, up to 85% LTV, 35-year fully amortizing terms, and the lowest fixed rates. The trade-off is a lengthy process (6–8 months), extensive regulatory compliance (including Davis-Bacon wage requirements), and limitation to multifamily and healthcare properties.

The Commercial Real Estate Capital Stack

The capital stack is one of the most important concepts in commercial real estate finance. It describes the layered hierarchy of all capital sources used to fund a transaction, ordered by repayment priority and risk.

Layer	Position	Typical Cost	Risk Level
Senior Debt (First Mortgage)	Highest priority — paid first	5–8%	Lowest
Mezzanine Debt	Second priority — paid after senior	10–18%	Moderate-High
Preferred Equity	Third priority — after all debt	8–15% preferred return	High
Common Equity	Last priority — residual	15–25%+ target IRR	Highest

In the simplest commercial transaction, the capital stack has just two layers: senior debt (the commercial mortgage, typically 65–80% of value) and common equity (the borrower’s down payment, typically 20–35% of value). For larger or more complex deals, mezzanine debt and preferred equity are added between the mortgage and the borrower’s equity to increase total leverage. For example, a $10 million acquisition might be funded with $7 million in senior debt (70% LTV), $1.5 million in mezzanine debt, and $1.5 million in borrower equity — allowing the borrower to control a $10 million asset with only $1.5 million of their own capital.

General CRE Loan Requirements

Requirement	Typical Range
Down Payment / Equity	10% (SBA 504) to 35% (bridge/hard money), 20–25% most common
DSCR	1.20x – 1.35x minimum (varies by product and property type)
LTV	60–80% (lower for riskier properties, higher for SBA/agency)
Credit Score (Borrower)	660–700+ for bank/SBA; CMBS focuses more on property performance
Net Worth	Typically equal to or greater than the loan amount requested
Liquidity / Reserves	9–12+ months of debt service post-closing in liquid assets
Experience	Preferred for most products; required for agency and life company
Property Occupancy	85–90%+ for permanent financing (lower OK for bridge)
Appraisal	Required — income approach (NOI ÷ cap rate) is primary method
Environmental (Phase I)	Required for all commercial loans
Entity Ownership	Standard — LLC, LP, corporation (personal name also acceptable)
Minimum Loan Amount	$500K (bank) to $2M+ (CMBS, life company)

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Step-by-Step CRE Loan Process

1: Prepare the loan package

Assemble the key documents: property financials (trailing 12-month and 2–3 year historical P&L, current rent roll with lease terms, operating statements), borrower financial statements (personal financial statement, Schedule of Real Estate Owned, tax returns), entity documentation (articles of organization, operating agreement), and a business plan describing the acquisition thesis, renovation plan (if applicable), and exit or hold strategy.

2. Identify the right lender type

Based on the property type, condition, size, and your investment strategy, determine which loan products are applicable and approach 3–5 lenders for quotes. A commercial mortgage broker can streamline this process by shopping your deal across their lender network.

3. Receive and compare term sheets

Lenders who are interested will issue term sheets outlining proposed rates, fees, LTV, term, amortization, prepayment structure, recourse, and conditions. Compare total cost of capital (not just rate), prepayment flexibility, and closing timeline.

4. Formal application and due diligence

Upon accepting a term sheet, the lender initiates formal underwriting: ordering the appraisal (income approach), Phase I environmental site assessment, property condition report, title search, and survey. The borrower provides complete documentation for review.

5. Underwriting and approval

The lender evaluates property performance, market conditions, and sponsor strength. Credit committee approval is typically required. This phase takes 2–8 weeks depending on the lender type and deal complexity.

6. Closing

Close through a title company with title insurance, recording of the mortgage and all security instruments, and funding. Closing costs on commercial loans typically run 2–5% of the loan amount, including appraisal, environmental, legal, title, recording, and lender fees.

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Commercial Real Estate Loan Calculators

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How Commercial Loan Underwriting Works

Commercial loan underwriting evaluates three dimensions: the property, the market, and the sponsor (borrower).

The property is assessed through its financial performance (historical and projected NOI, DSCR, cap rate, expense ratios), physical condition (property inspection, deferred maintenance assessment, capital expenditure needs), lease analysis (tenant creditworthiness, lease terms and expirations, rollover risk, below-market rents), and occupancy (current and historical vacancy rates, market vacancy comparison). The property must demonstrate the ability to consistently generate sufficient income to service the proposed debt with a comfortable margin (DSCR of 1.20–1.35x).

The market is evaluated through comparable property analysis (what are similar properties selling for and renting for?), supply/demand dynamics (is new supply being built that could increase vacancy?), economic fundamentals (employment, population growth, income levels), and submarket-specific trends (is this specific area growing or declining?). Properties in strong, diversified markets with demonstrated rental demand receive better terms than properties in volatile or declining markets.

The sponsor (borrower) is reviewed for net worth (should generally equal or exceed the loan amount), liquidity (sufficient post-closing reserves to cover debt service during vacancy or downturn), experience (track record of successfully owning, managing, and operating similar commercial properties), and credit history (while less weighted than in residential lending, the sponsor’s credit history indicates overall financial responsibility).

Important Commercial Property Loan Terms

Essential Commercial Real Estate Lending Terms

Commercial Real Estate Financing FAQ

How much down payment is required for a commercial loan?

Down payment requirements range from 10% (SBA 504 for owner-occupied) to 40% (life insurance company for conservative underwriting). Most common is 20–30% for bank and CMBS loans. The specific requirement depends on the loan type, property type and quality, borrower experience, and DSCR constraints. If the property’s income doesn’t support a large enough loan at the lender’s required DSCR, additional equity (higher down payment) may be needed to reduce the loan amount to a level the property’s income can service.

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What is the capital stack in commercial real estate?

The capital stack is the layered hierarchy of all financing and equity sources used to fund a commercial real estate transaction, ordered by repayment priority. From top (highest priority, lowest risk, lowest return) to bottom (lowest priority, highest risk, highest potential return): senior debt (first mortgage), mezzanine debt, preferred equity, and common equity. Understanding the capital stack is essential for structuring larger commercial deals where multiple sources of capital are combined to maximize leverage while managing risk across different investor positions.

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What is a CMBS loan?

A CMBS (Commercial Mortgage-Backed Securities) loan is a commercial mortgage originated by a conduit lender, then pooled with other loans and securitized into bonds sold to investors. CMBS offers non-recourse financing, competitive rates, and standardized terms for stabilized commercial properties. The trade-off is rigid prepayment penalties (defeasance or yield maintenance), minimal flexibility for loan modifications, and formula-driven underwriting. CMBS issuance reached $158 billion in 2025. Typical parameters: 5–10 year terms, 25–30 year amortization, 65–75% LTV, 1.25 DSCR minimum, and loan amounts of $2 million+.

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Can I use an SBA loan for commercial real estate?

Yes, but only for owner-occupied commercial properties where the borrower’s business occupies at least 51% of the property (60% for new construction). The SBA 504 program offers the best terms — 10% down, fixed rates of 5.85–6.25% (2026), and 20–25 year terms through a three-party structure (bank 50%, CDC 40%, borrower 10%). The SBA 7(a) program offers more flexible use of funds but at higher variable rates (9.75–10.25%). Neither SBA program is available for pure investment properties where the borrower does not operate a business from the property.

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What is DSCR and why does it matter?

Debt Service Coverage Ratio (DSCR) is the ratio of the property’s net operating income to its annual debt service (total annual mortgage payments). A DSCR of 1.25 means the property generates 25% more income than needed to cover the mortgage. DSCR is the primary metric commercial lenders use to determine whether a property can support the proposed debt. Most lenders require a minimum DSCR of 1.20–1.35 depending on the property type and risk level. DSCR constraints — not LTV limits — are frequently the binding factor that determines the maximum loan amount on a commercial property.

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What is non-recourse financing?

Non-recourse financing limits the lender’s recovery to the collateral property in the event of default — the borrower is not personally liable for any deficiency beyond the property’s value. CMBS, agency (Fannie Mae/Freddie Mac), HUD/FHA, and most life insurance company loans are non-recourse, with standard “bad boy” carve-outs for fraud, intentional misrepresentation, environmental liability, and other egregious borrower behavior. Non-recourse is a major advantage of commercial lending — it limits the investor’s downside to the equity invested in the specific deal, without putting other personal assets at risk.

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How long does it take to close a commercial loan?

Closing timelines vary by product: hard money and bridge close in 1–3 weeks, bank/portfolio loans in 30–60 days, CMBS in 60–90 days, SBA 504 and 7(a) in 60–90 days, and HUD/FHA multifamily in 6–8 months. The faster products (bridge, hard money) trade speed for higher cost; the slower products (HUD, SBA) trade timeline for the best terms in the market. For time-sensitive acquisitions, bridge or hard money financing may be used to secure the property quickly, with a planned refinance into permanent financing after closing.

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What property types qualify for commercial loans?

Commercial loans are available for virtually all income-producing property types: multifamily apartments (5+ units), office buildings, retail centers (strip, anchored, standalone NNN), industrial (warehouse, distribution, flex, manufacturing), hospitality (hotels, motels, resorts), mixed-use (commercial + residential), self-storage, medical office, senior living/assisted living, manufactured housing communities, parking structures, and specialty commercial assets. Different lender types have different property type preferences — agency lenders handle multifamily exclusively, while bank, CMBS, and bridge lenders cover the full spectrum.

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What is defeasance?

Defeasance is a prepayment mechanism used in CMBS and some agency loans. Instead of simply paying off the loan with cash, the borrower must purchase a portfolio of U.S. Treasury securities that replicate the remaining scheduled loan payments (principal + interest). These securities are pledged as substitute collateral, allowing the original property lien to be released while the bondholders continue receiving their expected cash flow. Defeasance is typically very expensive — involving the purchase of Treasury securities plus legal, accounting, and servicer fees — and can cost 5–15%+ of the outstanding loan balance depending on the remaining term and interest rate environment.

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Do I need commercial real estate experience to get a loan?

It depends on the loan product. CMBS loans underwrite primarily on the property’s cash flow and do not strictly require borrower experience. SBA 504 loans require business operating experience but not necessarily CRE ownership experience. Bank/portfolio loans evaluate experience but may approve first-time commercial investors with strong personal financials and a solid business plan. Agency (Fannie Mae) requires 2+ years of multifamily ownership experience. Life insurance company loans require significant experience and net worth. First-time commercial investors typically start with bank loans, SBA products, or DSCR loans before accessing agency and institutional products.

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What is the difference between a commercial loan and a residential loan?

The fundamental difference is underwriting focus. Residential loans evaluate the borrower’s personal finances — income, credit score, DTI ratio — and are available for 1–4 unit properties. Commercial loans evaluate the property’s financial performance — NOI, DSCR, cap rate, occupancy — and are used for 5+ unit multifamily and all non-residential property types. Commercial loans typically require higher down payments (20–35% vs. 3.5–25%), have shorter terms (5–10 years with balloon vs. 30-year fully amortizing), offer non-recourse options (not available in residential), support entity ownership (LLC/LP), and have higher closing costs but no property count limits.

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