If you’re considering acquiring or refinancing commercial property, understanding how commercial real estate (CRE) financing works is essential. At FinanceBoston, Inc., we specialize in helping business owners, investors, and developers navigate the complexities of CRE loans. Here’s what you need to know before you apply.
What Is a Commercial Real Estate Loan?
A commercial real estate loan is used to purchase, refinance, build, or renovate income-producing properties such as office buildings, retail spaces, industrial facilities, and hotels. Unlike residential loans, CRE financing involves larger loan amounts, shorter terms, and different underwriting standards.
The average commercial real estate loan is significantly higher than its residential counterpart, often exceeding $2 million. Additionally, while residential loans typically offer long-term, fixed-rate terms, commercial loans usually range from 5 to 10 years, often with amortization schedules of up to 25 years and balloon payments due at maturity.
Types of Commercial Real Estate Loans
1. Conventional Bank Loans
Traditional bank loans are among the most common financing solutions for CRE. These loans can fund acquisitions, developments, or refinances, and typically offer competitive interest rates.
Key Considerations:
- Loan terms vary by institution.
- Most lenders require a credit score of 660+ and a 20% down payment.
- Properties don’t always need to be owner-occupied.
- Prepayment penalties may apply (e.g., yield maintenance, step-down, or defeasance).
2. SBA Loans
The U.S. Small Business Administration (SBA) offers two key loan programs for commercial real estate:
- SBA 7(a) Loan: Flexible financing for property purchases, business acquisitions, equipment, or refinancing. Max loan amount: $5 million. Typical down payment: 10%.
- SBA 504 Loan: Designed for fixed assets like real estate or major renovations. Also capped at $5 million with similar down payment requirements.
Benefits:
- Longer repayment terms
- Competitive interest rates
- Lower down payment than traditional loans
Note: SBA loans may take 60–90 days or more to close due to the detailed application and approval process.
3. Bridge Loans
Bridge loans are short-term, interest-only loans intended to “bridge the gap” between the purchase of a property and securing long-term financing. These loans typically last 6 months to 3 years and are popular for investors needing quick capital.
Ideal For:
- Fix-and-flip investors
- Buyers needing funds before long-term financing is available
Pros & Cons:
- Fast funding, flexible terms
- Higher interest rates and short payoff timelines
4. Hard Money Loans
Hard money loans offer another short-term financing option, typically for borrowers who may not qualify for traditional loans due to credit or income limitations. These loans are based more on the asset’s value than the borrower’s financials.
Risks:
- Higher interest rates and fees (origination, closing, processing)
- Short repayment periods (often 12–36 months)
Requirements:
- Strong property valuation
- Substantial down payment
- Potential need for income verification and credit review
Best Practices:
- Use when fast funding is essential
- Have a clear exit strategy or refinance plan
- Ensure the loan can be extended if needed — without increased rates or excessive fees
Final Thoughts from FinanceBoston, Inc.
Choosing the right commercial real estate loan depends on your business goals, financial profile, and property type. At FinanceBoston, Inc., we take a consultative approach—helping you evaluate financing options tailored to your specific needs and timeline. Ready to discuss your CRE financing options? Contact FinanceBoston, Inc. today to speak with an expert.
FinanceBoston, Inc.
33 Broad Street
Boston, MA 02109
617-861-2041
https://financeboston.com/
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