Guide to Commercial Mortgage Loans

If you own a business and you want to buy a building, a commercial mortgage loan is what you need. It's like a regular mortgage loan, but it's used to purchase property for commercial purposes - like offices, warehouses, apartments, shopping centers, or land you want to use for business. You can also use the loan to expand or develop an existing property that you already own.

Below are the different types of commercial mortgage loans, how to apply for them, their interest rates, and other options you have.

Who needs a commercial mortgage loan? Do I need one?

Having your commercial property is like investing in your business's future. Instead of renting office space or a warehouse, you can buy the property you need for your business. This way, you own the area, and as real estate prices go up over time, you'll have a piece of that equity, which can help your business grow and become more successful.

Commercial Mortgage Loan Lenders

Traditional Banks
Asset-backed Trusts (CMBS) – hard money lender
Government-sponsored Enterprises
GSE-backed mortgage pools
Life Insurance Companies

Standard Requirements to Apply for a Commercial Mortgage Loan

You'll need to provide the lender with information about your business finances to apply for a commercial mortgage loan. This includes:

Up-to-date tax returns (both business and personal)
Business-financial records
Bank statements – savings and checking (both business and personal)
Asset and liability statements
Financial history and profiles of all business partners and directors

The Commercial Mortgage Loan Application Process

Before applying for a loan, a lender will assess your finances, income, and debt to see if you qualify. This helps them determine the amount and interest rate. An appraisal is required, and traditional lenders request paperwork to prove your business is stable. Credit history, income, and collateral are also considered, and underwriting and approval can take 3-4 months.

Most Common Interest and Repayment Terms for Commercial Mortgage Loans

Commercial mortgage loans can be up to 85% of LTV, with fixed and variable rates (5-7%) for terms of 5-30 years. Established businesses with excellent credit and 2+ yrs in business may need a credit score of 660+ and a 20% down payment.

Hard money loans have higher interest rates (10-18%) and shorter terms (6-24 months), while soft money lenders offer lower rates and longer periods (6 months-5 years).

Alternatives to Commercial Mortgage Loans

Consider alternatives if you need the money quickly. Commercial mortgage loans can last up to 30 years, but shorter-term options are also available. Other loans or rental property may be better options.

Commercial Bridge Loan

You can get up to 90% of the cost of the purchase. The loan terms are relatively short, ranging from 6 months to 3 years.

Commercial Hard Money Loan

Commercial hard money loans are short-term loans businesses can take out to help finance renovations. They usually last between one and three years.

CDC/SBA 504 Loan

CDC/SBA 504 loan can be up to 90% of the purchase price and can be paid back over 10 to 20 years; there is no maximum limit on how much you can borrow.

SBA 7(a) Loan

SBA 7(a) loans are loans offered by the Small Business Administration for existing businesses. These loans can be for up to $5 million and can be paid back in 25 years.