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A commercial real estate loan is most commonly used to purchase and/or renovate an owner-occupied commercial property. An “owner-occupied” commercial property is generally considered to be a property where the business occupies at least 51% of the building. Commercial mortgages are used to finance such commercial properties as mixed-use buildings, retail centers, and office buildings.
If you’ve been in business for 3+ years, plan on occupying at least 51% of the building, and have a credit score above 675, you may qualify for a SBA 7(a) loan. Mint Financial Group is an experienced SBA lender that offers rates as low as 7.00% and loans up to $5M.
We offer commercial real estate investors the opportunity to leverage short-term financing benefits without compromising long-term ROI, making the property’s financial transition seamless.
Let’s take a look at the 5 main types of commercial real estate loans. Each of these loans have specific terms and qualifications that make them suitable for certain types of commercial buildings.
An SBA 7(a) loan is a mortgage backed by the U.S. Small Business Administration. SBA 7(a) loans are the most common type of SBA loans and they help businesses purchase or refinance owner-occupied commercial properties up to $5,000,000. In 2016, 65% of all SBA 7(a) loans were issued to existing businesses while 35% were issued to new businesses. However, the majority of SBA 7(a) loans are used for working capital, although they can be used to purchase commercial real estate, too.
SBA 7(a) Loan for Commercial Real Estate | |
Maximum Loan Amount | Up to 85 – 90% of Purchase Price |
Minimum Down Payment | 10% – 15%+ of Purchase Price Preferred |
Interest Rates | 5% – 8.75% |
SBA Guarantee Fee | 0% – 3.75% (of guaranteed portion) |
Closing Costs | 2% – 5% Closing Costs |
Typical Loan Term | 10 – 25 Years |
Time to Approval / Funding | 60 – 90 Days |
Credit Score | 680+ |
Years in Business | 3+ Years |
Debt-Service Coverage Ratio | 1.25+ |
Owner-Occupied? | At Least 51% |
An SBA 7(a) loan for commercial real estate typically finances between 85% – 90% of a commercial property’s purchase price. The U.S. Small Business Association also guarantees a maximum loan amount of $5,000,000.
This means that you should expect to cover a down payment between 10% – 15% of your commercial property’s purchase price. However, well-qualified buyers can have their cash down payment requirements waived. For example, an existing SBA-eligible business can receive this waiver if it meets the following requirements:
Financing is available for specific business types, such as:
The interest rate on SBA 7(a) loans are typically between 5% – 8.75%. SBA 7(a) loans are can have both fixed rates as well as variable interest rates. For example, variable rates are calculated as the prime rate (4%) plus a maximum of 2.75%. Variable rate SBA loans are typically fixed for 3 – 10 years before adjusting.
Typical SBA 7(a) loan fees:
These fees are typically taken directly out of the loan and don’t come out of pocket. Further, some SBA lenders assess a prepayment penalty if you pay off the loan early. However, prepayment penalties are dependent on the lender. Standard penalties for prepayment are around 1% of the loan.
The typical loan term of an SBA 7(a) loan for commercial real estate is between 10 – 25 years. Monthly payments are fully amortized over the 10 – 25-year term. The standard time for approval and funding is between 60 – 90 days.
The Small Business Administration enforces strict qualifications for SBA loan approval. Specifically, you should expect to have the following prior to applying for an SBA 7(a) loan:
Further, if you expect to finance the construction of a new commercial property, your business will need to occupy 60% of the building with plans to occupy up to 80% of the space.
SBA 7(a) loans can be obtained through any SBA-approved lender. These lenders range from larger traditional banks to smaller credit unions and private lenders. If you have a prior relationship with a bank or credit union, it’s best to check with them first to see if they’re approved to make SBA loans and if they’re PLP lenders.
Mint financial can qualify you for up to $5 million in commercial real estate funding through an SBA 7a loan. They offer fixed rates as low as prime plus 2.0%, and can fund all kinds of projects through the SBA loan program. Using technology to speed up the process, Mint Financial can fund your approved loan in as quick as 30 days.
A CDC / SBA 504 loan for commercial real estate is backed by the U.S. Small Business Association. CDC / SBA 504 loans help new and existing businesses purchase or refinance an owner-occupied commercial property. A CDC / SBA 504 loan is considered two loans and there is no maximum loan amount.
| CDC / SBA 504 Loan for Commercial Real Estate |
Maximum Loan Amount | Up to 90% of Purchase Price |
Minimum Down Payment | 10%+ of Purchase Price |
Interest Rates | 3.5% – 5% |
SBA Guarantee Fee | 0% – 3.75% (on SBA amount) |
CDC Processing Fee | 0% – 1.5% (on CDC portion) |
Closing Costs | 2% – 5% Closing Costs |
Typical Loan Term | 20 Years (10 years for equipment purchases) |
Time to Approval / Funding | 60 – 90 Days |
Credit Score | 680+ |
Years in Business | 3+ Years |
Debt-Service Coverage Ratio | 1.25+ |
Owner-Occupied? | At Least 51% |
A traditional commercial mortgage is a standard commercial loan issued by a bank or lending institution and not backed by the federal government. Traditional commercial mortgages are used to purchase or refinance such things as an owner-occupied office building, retail center, shopping center, industrial warehouse, and more.
| Traditional Commercial Mortgage |
Maximum Loan Amount | 65% – 85% Loan-to-Value (LTV) |
Minimum Down Payment | 15% – 35% of Purchase Price |
Interest Rates | 4.75% – 6.75% |
Origination Fees | 0% – 1% Origination Fees, |
Closing Costs | 2% – 5% Closing Costs |
Typical Loan Term | 5 – 20 Years |
Time to Approval / Funding | 30 – 45 Days |
Credit Score | 700+ |
Years in Business | 1-5 Years |
Debt-Service Coverage Ratio | 1.25+ |
Owner-Occupied? | At Least 51% |
A commercial bridge loan is a short-term real estate loan used to a purchase owner-occupied commercial property before refinancing to a long-term mortgage at a later date. Commercial bridge loans are issued by traditional banks and lending institutions and help borrowers compete with all-cash buyers.
| Commercial Bridge Loan |
Maximum Loan Amount | 80% – 90% of Loan-to-Value (LTV) |
Minimum Down Payment | 10% – 20% of Loan-to-Value (LTV) |
Interest Rates | 6.5% – 9% |
Loan Origination Fees | 1% – 6% |
Closing Costs | 2% – 5% |
Exit Fee | 1% |
Typical Loan Term | 6 Months – 36 Months |
Time to Approval / Funding | 15 – 45 Days |
Credit Score | 650+ Credit Score |
Debt-Service-Coverage-Ratio (DSCR) | 1.10+ |
Prior Commercial Projects | 1 – 3 |
A commercial hard money loan is a short-term loan used to purchase and sometimes renovate an owner-occupied commercial property before refinancing to a long-term mortgage. Commercial hard money loans are similar to commercial bridge loans in that they help businesses close fast and offer interest-only payments throughout the life of the loan.
| Commercial Hard Money Loan |
Maximum Loan Amount | Up to 80% LTC |
Minimum Down Payment | 15% – 35% of Purchase Price |
Interest Rates | 8% – 13% |
Origination Fees | 2% – 5% |
Closing Costs | 2% – 5% |
Prepayment Penalty | 1% |
Typical Loan Term | 1 – 3 Years |
Time to Approval / Funding | 10 – 15 Days |
Credit Score | 600+ |
Prior Commercial Projects | 1 – 3 |