What Is a Commercial Real Estate Loan and How to Apply

If you’re looking at making an investment in commercial real estate, you need financing that’s specific to the task. Financing for commercial properties is a bit different from financing a personal property purchase like a home or vacation property. There are more choices of instruments, and each has a specific purpose for a specific combination of investment type and property type. There are traditional amortizing fixed-rate loans that are similar to home mortgages, but they tend to have larger down payments and shorter terms than the residential mortgages that new entrepreneurs might be more familiar with.

For companies that fit the Small Business Administration’s criteria, SBA loans provide an option for commercial real estate financing that is both affordable and generous in its terms. This is possible because the SBA works with lenders to guarantee part of all of a loan, making it possible for the lender to offer loans to companies that usually fall outside their risk profile. These loans typically come with some provisions to slow down early repayment, because they are designed to provide a stable, long-term investment in facilities for companies that are growing, so the expectation is that your extra profit will be invested in establishing and stabilizing your business.

There are also options for construction loans that have milestone goals, so you can use the equity you build into a property to finance the next phase of your development. For shorter-term investments, bridge loans and hard money options give you the flexibility to close on a house, make improvements, and then either move into long-term financing or return it to the market. Sponsorship and mezzanine options are also there for large projects where traditional financing doesn’t quite go far enough.

If you’re trying to decide which commercial real estate loans are best for your current project, it’s important to ask whether you’re looking at a short-term or long-term investment. You should also consider whether you’re going to use it as your own company’s facilities, because SBA loans are only available to companies that will use the majority of the floorspace for their own facilities. Once you have that purpose in mind, a lending company will be able to help match you to the product that suits your purchase and intention.

Real estate loans for commercial investments are designed to help your business get the most out of its new asset. Make sure you have a conversation with your lender about what you’re trying to do with your next purchase. They will be able to get you started with an application.


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