How to Apply For a Commercial Real Estate Loan

Commercial real estate loans are available through a variety of lenders. The process of applying for one requires a comprehensive set of personal and business documents, including financial statements, tax returns, asset listings, and historical income and expense records.


The lender will review the property’s debt service coverage ratio (DSCR). This is the property’s annual net operating income divided by its mortgage debt payments.


When you apply for a commercial real estate loan, the lender will ask you to offer an asset as collateral in case you can’t make the monthly payments. This collateral usually consists of property, but it may also be a piece of equipment or cash. You might also be required to provide a personal guarantee. If the business fails, the lender will take ownership of the property and liquidate it to recoup the cost of the loan.

You’ll need a good credit score to qualify for a commercial real estate loan, though the exact requirements vary by lender. Some lenders consider only your business credit score and other factors, while others look at both your business and personal scores. The SBA considers a FICO credit score of 140 or higher for its 7(a) loan applicants, and some banks require a similar score to approve their own business loans.

Most business owners don’t have millions of dollars lying around to fund a commercial property purchase, so the lender will ask you to pledge a valuable asset as collateral for the loan. The asset can be anything that will generate revenue for the business, such as a building or parking lot, or it could be something that is less expensive to acquire and maintain, like machinery. The lender will use a property appraisal to determine the value of the asset. If you own multiple properties, you might want to use cross collateralization, a legal arrangement that allows you to pledge several assets as security for a single loan. This can reduce administrative costs and help you get a more advantageous interest rate and loan term.

Interest Rates

Like residential mortgages, commercial real estate loans come with a range of interest rates that are different for each property and borrower. A lender’s interest rate is determined by the loan-to-value ratio, the type of property and its prospective income, the amount of money that needs to be borrowed and other factors.

For example, some lenders require a minimum debt service coverage ratio (DSCR), which is calculated by dividing your business’s annual net operating income (NOI) by the property’s annual debt payments. Lenders typically look for DSCR ratios of 1.25 or above.

Similarly, some lenders consider certain property types more risky than others and may set lower loan-to-value ratios or charge higher interest rates on these properties. For instance, lenders often require larger down payments on industrial properties than they do on multifamily or office buildings.

The type of loan you choose also influences the rate that you will pay, as some lenders have fixed interest rates while others offer variable ones. Those with fixed interest rates will maintain the same rate for the life of your loan, while those with variable rates reset periodically.

In addition to the actual loan rate, you’ll also need to factor in fees charged by the lender. These can include property appraisal, legal fees and loan application charges. Some lenders also charge a loan origination fee, which is an upfront fee that pays for the lender’s staff to process your loan.


Like consumer mortgages, commercial real estate loans are usually backed by collateral. This collateral is typically the property itself, but some lenders may also require that the borrower provide personal guarantees. Similarly, there are a variety of fees associated with commercial real estate loans, including appraisal, legal and loan application fees.

Lenders also review a borrower’s income and cash flow when evaluating CRE loan applications. This includes the borrower’s personal income as well as the property’s rental income and other sources of cash flow. This is done to ensure that the borrower can afford to make their loan payments. In addition, a strong income and cash flow can help borrowers secure better loan terms and lower interest rates.

Another important factor is the property’s debt service coverage ratio (DSCR). This measures a property’s ability to pay its debt obligations. A DSCR of 1.0 or higher indicates that a property’s income is sufficient to cover its debt expenses.

Lastly, investors in commercial real estate can take advantage of various tax benefits, such as depreciation. This is an excellent way to reduce a property’s taxable income and minimize its impact on capital gains taxes. However, it is vital to stay abreast of the latest changes in tax laws to ensure that your commercial property investment is structured properly.


When purchasing commercial property, lenders often require you to secure insurance coverage that meets certain minimum standards. This insurance protects the lender’s investment in the event that a buyer defaults on the loan. The specifics of this insurance will vary by lender, but generally, you’ll be required to provide a commercial general liability policy with limits equal to or higher than the purchase price of the property. In addition, the lender may request that you obtain a master policy that provides evidence of adequate coverage for all properties that it has an interest in.

Unlike residential mortgages, which are typically secured by individual homeowners, commercial real estate loans are usually backed by business entities such as corporations, limited partnerships and funds. If a business entity defaults on the loan, lenders can seize its assets, including its real estate.

While qualifying for a commercial real estate loan may be more difficult than getting a home mortgage, the right lender can make all the difference. By shopping around for the best rates and qualifications, you can get a commercial real estate loan that’s ideal for your company.

A commercial real estate loan can help you buy land, a building or other property for your business. These loans are different than residential mortgages because they’re used to finance commercial property, which is primarily intended for income-producing purposes.