Commercial Real Estate Financing

A commercial real estate (CRE) loan finances income-producing or business-use properties — office buildings, retail centers, apartment complexes (5+ units), warehouses, hotels, and more. Unlike residential mortgages, CRE loans are underwritten primarily on the property's income (measured by DSCR), not just the borrower's personal income. Key structural differences: CRE loans have shorter terms (5–10 years) but longer amortization periods (20–25 years), often resulting in a balloon payment at term end. Down payments run 20–35% vs. 3–20% for residential. Approval typically takes 30–60 days.

Eligible property types include: multifamily (5+ residential units), office buildings (Class A, B, and C), retail (strip centers, single-tenant, anchored), industrial and warehouse, hospitality (hotels, motels), self-storage facilities, medical and dental offices, mixed-use (commercial + residential), special-purpose (car washes, gas stations, auto dealerships), and raw land for development. SBA programs favor owner-occupied properties; conventional and CMBS favor investor properties.

DSCR (Debt Service Coverage Ratio) measures whether a property generates enough income to cover its loan payments. Formula: Annual Net Operating Income (NOI) ÷ Annual Debt Service. A DSCR of 1.25x means the property earns 25% more than its debt payments. Most lenders require 1.20–1.25x minimum. If a property generates $12,500/month NOI and the loan payment is $10,000, the DSCR is 1.25x (Approved). If the DSCR is below 1.0x, the property is losing money, and financing becomes difficult regardless of your credit score.

Down payment requirements by loan type: SBA 504 (Owner-Occupied): 10–15% down (lowest option). SBA 7(a): 10–20% down. Conventional Commercial: 20–35% down. Bridge / Hard Money: 25–40% down. CMBS/Conduit: 25–35% down. Beyond the down payment, budget for closing costs (2–5%) and 6–12 months of liquidity reserves post-closing.

Most commercial loans have a mismatch between amortization (how payments are calculated) and term (when the loan must be paid off). Example: A loan with 25-year amortization and 10-year term has monthly payments calculated as if you had 25 years, but the remaining balance becomes due as a 'balloon payment' at year 10. This forces a refinance or sale. SBA 504 and 7(a) loans offer full amortization (no balloon) — the safest structure. Always confirm whether your loan has a balloon and plan your exit strategy.

Timeline varies significantly by loan type: Conventional Bank: 30–60 days. SBA 504 / 7(a): 45–60 days. Bridge Loans: 2–4 weeks. Hard Money: 5–15 days. The main timeline drivers are the appraisal (10–21 days), environmental Phase I assessment (1–2 weeks), and title search. Submit a complete package on day one to shave weeks off the process.