Commercial Loan

Commercial Real Estate Loans: How to Get a Commercial Mortgage

A commercial mortgage loan is used to buy property for your business out of as well as buy income resulting commercial properties. How the property will be used affects what kind of commercial mortgage is right for your business. The loan came in the short term say a few months and as long as 30 years.

The loan fees and interest rates vary with time as well as property at hand.

Types of commercial mortgage loans 2016

The common long-term commercial mortgage loans are a traditional commercial mortgage, SBA 7 (a) loan for commercial real estate and CDC/SBS 505 commercial mortgage loan.

The traditional commercial real estate loan has a term of 5-25 years to with interest varying 4.5% to 7.5% with an option of the balloon payment. The SBA 7(a) commercial mortgage loan has a 20 to a 25-year term and fully amortised with variable interest rates of 5%-6.5% and no balloon payments.

The CBA/SBA 504 loan has a 10 to 20 years term, variable to the fixed interest of 4% to 5.5% and can be made in two parts.  1st mortgage from the bank at a fixed or a variable rate and have a balloon payment and 2nd mortgage from CDC fully amortised and had a fixed rate.

The type of financing available fall under the two broad categories:

  • Owners occupied where the buyer’s business fall under 51% or more of the property space.
  • Investment –income was producing where the buyer intends to lease the space to other business.

How to qualify for a commercial mortgage?

To qualify for a commercial mortgage, you must meet the following:

  • A credit score of 680+
  • No recent bankruptcies, tax liens or foreclosure
  • Minimum cash down payment of 10 percent
  • Business is 3+ old
  • Business has DSCR of 1.15+


Although, there special cases that warranty exceptions for borrowers with high net worth or have investment properties with high operating net income where the lenders set above minimum borrows requirements. More details in this post:

How to apply for a commercial real estate loan?

Once you have fully determined you meet the minimum basic borrower’s requirements for a commerce mortgage loan and the best for you, it’s time to find financing. The commercial mortgage loan application is more involving than applying for business credit card and at the time as hard as you may think.

When applying for a commercial mortgage loan, you will need credit and net worth requirements, a business plan as well as financial projecting and a management resumes. You will also need a loan to value ratio, debt services coverage ratio, and net operating income.

Lastly, review the common costs of commercial real estate loans beyond interest rates being charged. Although, the fees are standard costs that come prior closing, meaning you will need to cover them using your funds and not the loan money. The four most common costs are application and packaging fees, appraisal and survey fees, environment studies as well as prepayment penalties.

Get government-backed commercial mortgage loans as they are the most generous in rate and terms, but a business operating out of 51% or more of the properties are required.

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