October 6, 2025
Written By: David DiNatale, Esq.
Structuring a commercial real estate deal is a complex process, especially when it comes to securing financing. Commercial mortgages are structured differently than traditional residential mortgages, which makes it essential to understand the most relevant financing options available today.
In this updated guide, we explore the twelve major types of commercial real estate loans, their benefits, and key attributes. We also provide a 2025 market overview and a detailed look at lender underwriting to help you navigate the current capital markets with confidence.
To choose the right financing strategy, one must first understand the broader economic environment. The commercial real estate (CRE) financing market in 2025 is defined by a dynamic mix of cautious optimism, significant challenges, and emerging opportunities.
After a period of tighter credit conditions, lending activity is showing renewed momentum. The Mortgage Bankers Association (MBA) forecasts that total commercial and multifamily mortgage borrowing will rise to $583 billion in 2025, a 16 percent increase from 2024’s estimated totals.1 This rebound, however, is not uniform across all asset classes, leading to a bifurcated or “two-tiered” market.
On one side, sectors like multifamily and industrial continue to demonstrate resilience and strong performance. Multifamily remains a favored asset class, supported by steady rental demand and record-high inventory growth in major metros.2 Similarly, the industrial sector, while normalizing from its pandemic-era highs, remains robust due to persistent e-commerce and logistics demand.3 Lenders are actively competing for deals in these sectors.
On the other side, the office sector continues to face significant headwinds. The national office vacancy rate climbed to a record high of 20.4% in the first quarter of 2025, a direct consequence of shifting work habits and corporate downsizing.2 While there are nascent signs of stabilization in prime assets in top-tier markets like New York’s Midtown, lenders remain highly selective and cautious when underwriting office properties.2
One of the most significant forces shaping the 2025 market is the sheer volume of maturing debt. Nearly $1 trillion in commercial mortgages are set to mature in 2025, creating immense demand for refinancing options.4 This so-called “wall of maturities” presents both a challenge and an opportunity.
The primary challenge stems from the dramatic shift in the interest rate environment. Many of the loans maturing in 2025 were originated 5 to 10 years ago when interest rates were at historic lows. As these loans come due, borrowers must refinance into a market with significantly higher borrowing costs. This creates a potential “refinancing gap.” A property’s net operating income (NOI), which was sufficient to support a certain loan amount at a 4% interest rate, may no longer be adequate to support the same loan amount at a 7% rate while still meeting the lender’s required debt service coverage ratio. Consequently, many borrowers may find that their new loan proceeds are not enough to pay off the maturing loan balance, forcing them to inject fresh equity, seek more expensive junior financing, or sell the asset.
While the extreme volatility of recent years has subsided, interest rates remain elevated compared to the pre-2022 landscape.4 As of mid-2025, commercial real estate loan rates generally range from just over 5% to above 15%, depending on the loan type, property type, and risk profile.5 For example, a stabilized multifamily property might secure a loan in the 5.35% to 7.75% range, while a riskier office or retail property could see rates from 6.00% to 12.00%.5 This higher cost of capital directly impacts underwriting, making it more difficult for properties to generate the cash flow needed to support high leverage.
The cautious stance of traditional banks, particularly for transitional assets or out-of-favor property types, has created a significant opening for non-bank lenders. Private credit funds, debt funds, and other alternative lenders have become a mainstream component of the CRE capital stack.7 These groups have stepped in to fill the capital void, offering greater flexibility, faster execution, and more creative loan structures than regulated depository institutions.7 While their capital is more expensive, they provide a vital source of liquidity for borrowers who may not meet the stringent criteria of traditional banks, especially for value-add projects, bridge financing, and construction loans.
Sustainability is no longer a niche concern but a growing factor in lending decisions. Lenders are increasingly integrating Environmental, Social, and Governance (ESG) criteria into their underwriting, driven by both regulatory pressure and investor demand.4 This has given rise to sustainability-linked loans (SLLs) and other forms of “green financing” that may offer preferential terms for properties meeting specific energy efficiency or environmental benchmarks.7 Investors who incorporate sustainability into their projects can broaden their pool of potential lenders and position themselves to access more competitive capital.
Before exploring specific loan types, it is critical to understand how lenders think. The commercial loan underwriting process is a detailed evaluation designed to assess the risk of a given loan.8 In 2025, with a backdrop of higher rates and economic uncertainty, lenders are applying more conservative standards than in years past. A borrower’s ability to secure financing depends on their project satisfying three core financial metrics.
Lenders use a trio of ratios to determine how much they are willing to lend on a property. These metrics work together to ensure the property has sufficient cash flow to service the debt and enough equity to protect the lender in a downside scenario.
A loan is ultimately sized to the lowest of the amounts determined by these three constraints. This interplay is crucial for borrowers to understand. For instance, a property might appraise at a value that supports a 70% LTV loan. However, if the property’s NOI, when factored with current interest rates and a 25-year amortization, can only generate a 1.25x DSCR at a loan amount equivalent to 63% LTV, the lender will offer the lower amount. In today’s higher-rate environment, the DSCR constraint is often the limiting factor that dictates the final loan amount.9
This conservative approach is a direct response to recent market volatility. Lenders are no longer underwriting solely based on a property’s historical performance. Instead, they are rigorously stress-testing deals, modeling scenarios with higher interest rates, increased vacancy, or lower rental income to ensure the loan can perform even if market conditions deteriorate.14 This means a borrower’s proforma financials will be heavily scrutinized and often adjusted downward by the lender. A successful application requires a business plan that is not just optimistic but resilient.
|
Property Type |
Typical Minimum DSCR |
Typical Maximum LTV |
|
Multifamily |
1.25x |
65% – 75% |
|
Industrial / Logistics |
1.25x |
65% – 70% |
|
Grocery-Anchored Retail |
1.30x |
60% – 65% |
|
Office (Class A, Leased) |
1.35x |
55% – 60% |
|
Office (Class B/C) |
1.40x+ |
< 55% |
|
Hotel (Flagged) |
1.40x |
60% – 65% |
Note: These are general market estimates. Specific requirements vary significantly by lender, market, and deal specifics. Sources:.9
These loan types form the bedrock of financing for stable, income-producing properties with strong operating histories. They are best suited for investors seeking long-term, fixed-rate debt.
Permanent loans, also known as conventional or traditional bank loans, are the cornerstone of commercial real estate finance. They are provided by depository institutions like commercial banks and credit unions and are designed for stabilized, income-producing properties.
Underwriting Focus: The underwriting process for a permanent loan is comprehensive, evaluating both the property and the borrower (also known as the sponsor). Lenders require a complete financial picture, including 2-3 years of business and personal tax returns, profit and loss statements, balance sheets, and a personal financial statement.8 The property’s performance is verified through current rent rolls and historical operating statements. A third-party appraisal is always required to confirm the property’s market value.8 Critically, banks place a heavy emphasis on the borrower’s creditworthiness, requiring strong credit scores, adequate liquidity, and a net worth commensurate with the loan size. The strength of the existing banking relationship can also play a significant role in the approval process and final loan terms.
Terms: Loan terms typically range from five to ten years, with amortization schedules often extending to 20 or 25 years.11 This mismatch between the loan term and amortization period results in a “balloon payment”—a large lump-sum principal balance due at maturity. Interest rates can be fixed for the term or variable, tied to a benchmark like the Prime Rate or SOFR.6 Down payments of 25-35% (equivalent to 65-75% LTV) are standard.11
Best For: High-quality borrowers with a proven track record, strong financials, and stabilized, low-risk assets (e.g., well-occupied apartment buildings, industrial warehouses with long-term tenants). They are ideal for investors looking to secure competitive, long-term financing for core holdings.
Commercial Mortgage-Backed Securities (CMBS) loans, also known as conduit loans, are a distinct alternative to traditional bank financing. In this structure, a lender originates a loan with the specific intent of pooling it with other similar commercial mortgages and selling the entire pool to a trust. This trust then issues a series of bonds of varying credit quality to investors on the secondary market.17
Underwriting Focus: CMBS underwriting is fundamentally property-centric, not borrower-centric.18 The primary focus is on the real estate’s ability to generate stable, predictable cash flow. The borrower’s financial strength is less critical than the property’s performance metrics. This process is heavily influenced by the criteria of credit rating agencies (like Moody’s or S&P), which must rate the bonds before they can be sold.19
A key and often complex requirement for borrowers is the formation of a Special Purpose Entity (SPE), which must be “bankruptcy-remote”.19 This means the borrowing entity can only own the subject property and can incur no other debt. The SPE must also adhere to strict “separateness covenants,” such as maintaining separate books and records, to ensure its assets would not be consolidated into an affiliate’s bankruptcy proceeding.19 This asset isolation is paramount to investors.
Terms: CMBS loans are typically structured with 10-year, fixed-rate terms and are almost always non-recourse.17 Non-recourse means the lender’s only remedy in a default is to foreclose on the property; they cannot pursue the borrower’s personal assets (except in cases of fraud or other “bad-boy” acts). A major consideration is that these loans have significant prepayment restrictions, typically in the form of
yield maintenance or defeasance, which can make it very expensive to sell or refinance the property before the loan’s maturity date.18
Best For: Investors seeking maximum leverage on stabilized, income-producing properties who plan to hold the asset for the full loan term. The non-recourse feature is highly attractive to partnership structures and institutional investors.
While technically a type of permanent loan, financing from Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac is so dominant in the apartment sector that it warrants its own category. These agencies do not lend directly but purchase qualifying loans from a network of approved lenders, providing a stable and liquid source of capital for the multifamily market.
Underwriting Focus: Agency underwriting is highly standardized and focuses intensely on the property’s operational strength and the borrower’s experience. Lenders typically require a property to have maintained at least 90% occupancy for the preceding 90 days.21 The borrower and management team must demonstrate significant experience owning and operating similar multifamily assets. While credit and financials are important, the agencies place a premium on sponsorship quality. Minimum net worth and liquidity requirements are also enforced, often requiring a net worth equal to the loan amount and post-closing liquidity of at least 6-12 months of debt service.21 The agencies also play a critical public policy role by offering favorable terms for properties that include affordable or workforce housing components.2
Terms: Agency loans are renowned for offering some of the most attractive terms in the market, including long-term fixed rates (up to 30 years), full 30-year amortization schedules (which can eliminate balloon payments), and non-recourse options.16
Best For: Exclusively for the acquisition or refinance of stabilized multifamily properties with five or more units. They are the go-to financing source for nearly all long-term holders of apartment buildings.
This category of loans is specifically designed to help small and medium-sized businesses transition from leasing to owning their commercial space.
Loans backed by the U.S. Small Business Administration (SBA) are a vital source of capital for businesses looking to purchase, construct, or improve owner-occupied real estate. The SBA does not lend money directly but provides a government guarantee to participating lenders, which reduces the lender’s risk and encourages them to offer more favorable terms.23
Underwriting Focus: To be eligible, a business must be for-profit, operate within the U.S., meet the SBA’s size standards for its industry, and have been unable to obtain comparable financing elsewhere.23 The most critical requirement is for occupancy: the business must occupy at least 51% of an existing property or 60% of a newly constructed building.24 The SBA also requires a personal guarantee from any individual with 20% or more ownership in the business.24 Underwriters will assess the business’s historical cash flow, credit history, and ability to repay the loan.
Structural Comparison: The SBA offers two primary programs for real estate, each with a distinct structure:
Best For: Established small businesses purchasing commercial property for their own operations. The 504 program is ideal for pure real estate acquisitions due to its low down payment and fixed-rate structure, while the 7(a) program is better for multi-purpose financing needs.
Not all properties are stabilized. For assets that are vacant, undergoing renovation, or in the process of leasing up, a different set of short-term, flexible financing tools is required.
As the name implies, a bridge loan provides short-term capital to “bridge” a gap between a property’s current state and its future stabilized potential. These loans are commonly used to acquire a property quickly, fund renovations and lease-up costs, or provide runway for an owner to execute a business plan before securing long-term permanent financing.
Underwriting Focus: Bridge loan underwriting is fundamentally different from permanent loan underwriting. It is asset-based and forward-looking. While the borrower’s experience is heavily weighted, the lender’s primary focus is on the viability and credibility of the exit strategy.26 The key underwriting question is not “What is the property’s cash flow today?” but rather “How will the borrower increase the property’s value and NOI to a point where they can either sell it for a profit or refinance into a permanent loan?” Lenders will meticulously analyze the proposed business plan, construction budget, and market assumptions. A clear, well-supported path to stabilization and repayment is the most critical element for approval.14
Terms: Bridge loans are typically short-term, ranging from 12 to 36 months.27 They are almost always structured with interest-only payments to maximize cash flow during the transitional period. In exchange for speed and flexibility, interest rates are higher than permanent loans, often starting around 9% and increasing based on risk.12 Lenders typically finance up to 70-75% of the project’s cost (Loan-to-Cost).27
Best For: Experienced real estate investors pursuing value-add strategies, such as renovating an older apartment complex or leasing up a vacant retail center. They are also essential for time-sensitive acquisitions where a fast closing is required to win the deal.
Private credit and hard money loans represent the fastest, most flexible, and most expensive capital available in the market. While often used interchangeably, “private credit” typically refers to more institutional and larger-scale non-bank lenders, whereas “hard money” often originates from smaller, private investment groups or high-net-worth individuals.28
Underwriting Focus: This is the purest form of asset-based lending. The underwriting decision is based almost entirely on the value of the real estate collateral, with minimal emphasis on the borrower’s credit score, income, or financial history.29 The lender’s primary concern is the property’s “as-is” value and its liquidation potential. Because the lender is taking on more risk and forgoing traditional documentation, they are lending against the hard asset. The borrower’s exit strategy is still important, but the lender’s ultimate security is the equity in the property.
Terms: These loans are characterized by very short terms (typically 6 to 24 months), high interest rates (often 10% to 15% or more), and significant upfront fees or “points” (1% to 4% of the loan amount).28 Loan-to-value ratios are conservative, often capped at 60-70% of the property’s value, requiring the borrower to have substantial equity in the deal.30 The key benefit is speed; these loans can often close in a matter of days, compared to the weeks or months required for conventional financing.28
Best For: Fix-and-flip investors, borrowers with impaired credit or unverifiable income, distressed property acquisitions, and any situation where the speed of execution is the highest priority and worth the additional cost.
This category covers financing for more complex scenarios, including ground-up construction, land acquisition, and the management of large real estate portfolios.
Construction loans provide the capital needed to build a commercial property from the ground up or to undertake a major gut renovation. Unlike other loan types where funds are disbursed as a lump sum at closing, construction loans are paid out in stages, or “draws,” as the project reaches pre-determined milestones.
Underwriting Focus: Construction lending is considered high-risk, and the underwriting is correspondingly rigorous and documentation-intensive. The lender is essentially betting on the developer’s ability to create a valuable asset in the future. The underwriting focuses on two key areas: the project’s feasibility and the developer’s capability. A successful application package must include a detailed construction budget (breaking down “hard costs” like materials and labor, and “soft costs” like architectural fees and permits), complete architectural plans and specifications, proof of all necessary permits and zoning approvals, and the credentials of the general contractor and development team.32 A critical component is the
“as-completed” appraisal, which estimates the property’s value upon completion and stabilization. The developer’s track record is paramount; lenders are highly unlikely to finance a large project for an inexperienced developer.
Terms: Construction loans are short-term, typically lasting 1 to 3 years, covering the construction period.32 Interest is charged only on the funds that have been drawn, and payments are usually interest-only. These loans are almost always recourse, meaning the developer must provide a personal guarantee.
Best For: Experienced developers with a strong track record of completing similar projects on time and on budget. A well-vetted project plan with a clear exit strategy (either sale or refinance into a permanent loan) is essential.
Financing the purchase of undeveloped land is notoriously difficult because the collateral generates no income to service the debt. As a result, these loans are considered very high-risk by lenders.
Underwriting Focus: With no cash flow to analyze, the underwriting decision rests almost entirely on the borrower’s financial strength and the quality of their plan for the land.34 The lender must be convinced of a clear and viable exit strategy, whether it involves developing the land, obtaining entitlements and selling to another developer, or holding for long-term appreciation. Extensive due diligence is required, including a boundary survey, a title report, zoning verification, and confirmation of utility access.35 Lenders will require a detailed business plan outlining the intended use, timeline, and budget for any proposed development.34
Terms: Land loans are characterized by very conservative terms. Lenders typically require substantial down payments, often ranging from 30% to 50% of the purchase price.35 Loan terms are short, and interest rates are significantly higher than for income-producing properties. This market is dominated by local banks with deep market knowledge and private lenders.
Best For: Well-capitalized investors, developers, or businesses with a specific, permitted, and financially viable plan for the land. This is not a loan for speculative land acquisition.
A blanket loan is a single mortgage that covers a portfolio of two or more properties.37 This financing tool allows investors to consolidate their debt, simplify loan management, and potentially leverage the equity across their portfolio.
Underwriting Focus: The lender underwrites the portfolio as a single economic unit. They will analyze the combined financial performance of all the properties, looking at the aggregate rent roll, total operating income, and overall occupancy rates.38 A key structural component of a blanket loan is the
release clause. This provision allows the borrower to sell or refinance an individual property from the portfolio without having to pay off and restructure the entire loan, provided certain conditions (like a partial paydown of the principal) are met.37
Terms: Terms can vary widely and may be structured as a permanent loan or a bridge loan, depending on the nature of the assets. The most significant risk for the borrower is cross-collateralization. Because all properties serve as collateral for the single loan, a default related to one underperforming property can trigger a default on the entire loan, putting the entire portfolio at risk of foreclosure.40
Best For: Experienced real estate investors and developers who own multiple properties and wish to streamline their financing, reduce administrative burden, or tap into their portfolio’s collective equity to fund new acquisitions.
For sophisticated investors and complex transactions, the capital stack can extend beyond a simple first mortgage. These advanced structures provide additional leverage and can unlock opportunities in large-scale projects.
Mezzanine debt and preferred equity are not senior mortgages but forms of junior capital that sit between the first mortgage (senior debt) and the sponsor’s cash investment (common equity) in the capital stack. Their primary function is to bridge the gap between the senior loan amount and the total project cost, allowing the sponsor to execute a project with less of their own equity.41
Function: Imagine a $20 million development project. A senior construction lender might only be willing to lend $12 million (60% LTC). The developer has $4 million in equity (20%). Mezzanine debt or preferred equity can be used to fill the remaining $4 million gap, increasing the total leverage to 80% and reducing the developer’s equity requirement.
Structural Differences: While they serve a similar purpose, their legal structures and remedies are critically different:
Best For: Large, institutional-scale acquisition or development projects where the sponsor is sophisticated and needs to increase leverage beyond what a single senior lender can provide. These are complex structures that involve significant legal costs.
Commercial Property Assessed Clean Energy (C-PACE) is an innovative financing mechanism enabled by state and local governments to fund energy efficiency, water conservation, renewable energy, and resiliency upgrades in commercial buildings.45
Function: C-PACE is not a traditional loan. Instead, the financing is provided by a private capital provider and is repaid through a special property tax assessment levied by the local municipality.47 This structure allows for long-term (typically 20-30 years), fixed-rate, non-recourse financing that can cover up to 100% of the project costs.47 Because the repayment obligation is tied to the property as a tax assessment, it automatically transfers to the next owner upon sale.45
Key Consideration for Lenders: The C-PACE assessment holds a super-priority lien on the property, meaning it gets paid before all other private debt, including the senior first mortgage.49 Consequently, the existing first mortgage holder
must provide their written consent before a C-PACE assessment can be placed on the property.47 Many senior lenders are willing to consent because the funded improvements often increase the property’s value and reduce its operating costs, thereby improving its ability to service the mortgage debt.
Best For: New construction projects or major gut rehabilitations. It allows developers and owners to fund green upgrades (like high-efficiency HVAC, solar panels, or seismic retrofitting) with long-term, fixed-rate capital, often improving the building’s NOI and value without requiring additional equity.
Rather than being a distinct loan type, refinancing is a strategic objective that can be accomplished using several of the products detailed in this guide. A borrower might refinance an existing loan to lower their interest rate, change the loan term, or switch from a recourse to a non-recourse structure. A “cash-out” refinance occurs when the new loan is larger than the existing debt being paid off, allowing the borrower to extract equity from the property in the form of cash.
Underwriting Focus: When a borrower seeks to take cash out, lenders apply an extra layer of scrutiny. They need to be confident that the property’s value has genuinely increased to support the higher loan amount, which will be confirmed by a new appraisal. Lenders will want to see a strong history of property performance and a clear, productive business purpose for the cash proceeds, such as funding capital improvements at the subject property or acquiring a new asset.16 They are generally wary of borrowers using cash-out proceeds to cover unrelated personal or business operating expenses.
Market Context: In the 2025 market, refinancing is the dominant activity due to the “wall of maturities”.4 Many borrowers are simply seeking to replace their maturing debt. Those who have successfully increased their property’s NOI over the past several years may be in a position to execute a cash-out refinance, even in the current higher-rate environment.
Selecting the right loan requires a careful evaluation of the property’s status, the investment strategy, and the borrower’s financial profile. The sheer number of options can be daunting, but the decision can be simplified by answering a few key questions.
Before approaching lenders, every borrower should ask:
|
Loan Type |
Best Use Case |
Typical LTV |
Typical Term |
Key Pro |
Key Con |
|
Permanent/Bank |
Long-term hold of stabilized asset |
60% – 70% |
5 – 10 years |
Competitive rates |
Full recourse, strict underwriting |
|
CMBS (Conduit) |
Long-term hold, max leverage |
65% – 75% |
10 years |
Non-recourse |
Inflexible, high prepayment penalty |
|
Multifamily Agency |
Stabilized multifamily hold |
65% – 80% |
10 – 30 years |
Best rates/terms, non-recourse |
Multifamily only, strict process |
|
SBA 504 / 7(a) |
Owner-occupied business property |
Up to 90% |
20 – 25 years |
Low down payment |
Business use only, complex process |
|
Bridge Loan |
Value-add, repositioning |
65% – 75% LTC |
1 – 3 years |
Fast, flexible, interest-only |
Higher rates, short-term |
|
Private/Hard Money |
Distressed asset, fast close |
60% – 70% |
6 – 24 months |
Very fast, asset-based |
Very high rates and fees |
|
Construction |
Ground-up development |
60% – 70% LTC |
1 – 3 years |
Funds large-scale projects |
High risk, recourse, intense oversight |
|
Vacant Land |
Pre-development acquisition |
50% – 60% |
1 – 5 years |
Enables land purchase |
Very high down payment, high risk |
|
Blanket Loan |
Portfolio financing/management |
60% – 70% |
Varies |
Simplifies management |
Cross-collateralization risk |
|
Mezzanine/Pref Equity |
Gap funding for large deals |
N/A (adds leverage) |
3 – 7 years |
Increases leverage, reduces equity |
Expensive, complex, high-risk |
|
C-PACE |
Funding green energy upgrades |
Up to 100% of cost |
20 – 30 years |
100% financing, long-term |
Super-priority lien requires consent |
|
Refinance/Cash-Out |
Strategic objective (rate reduction, equity extraction) |
Varies |
Varies |
Improves cash flow, frees capital |
Transaction costs, stricter underwriting |
The commercial real estate financing landscape of 2025 is one of transition. While the era of ultra-low interest rates is over, capital remains available for well-structured deals backed by strong fundamentals. The market is more disciplined, with lenders placing a premium on experienced sponsors, resilient cash flows, and conservative leverage.
For borrowers, this environment demands more thorough preparation, realistic expectations, and a strategic approach to financing. The expanding toolkit of loan products—from traditional bank debt to institutional private credit and innovative solutions like C-PACE—provides savvy investors with more options than ever before. Success in this market belongs to those who can accurately assess their project’s needs and align them with the right capital source at the right time.
How do I know which commercial loan type is right for me?
Start by clarifying your property’s status, your investment timeline, and your financial profile. If you have a stabilized property with consistent cash flow and plan to hold it long-term, a permanent, CMBS, or agency loan is likely the best fit. If the property is transitional, requires renovation, or is not yet leased up, you will need a short-term solution like a bridge or hard money loan first, with the goal of refinancing into a permanent loan later.
What is the difference between recourse and non-recourse debt?
With a recourse loan, if the borrower defaults and the foreclosure sale of the property does not generate enough money to cover the outstanding loan balance, the lender can pursue the borrower’s (and any guarantor’s) other personal assets to satisfy the debt. With a non-recourse loan, the lender’s only remedy is the collateral property itself; they cannot pursue the borrower’s other assets, except in specific cases of fraud or misrepresentation known as “bad-boy carve-outs.”
What is the minimum credit score for a commercial real estate loan?
This varies significantly by loan type. For traditional bank loans and multifamily agency loans, lenders typically prefer a minimum FICO score of 680 or higher.21 For SBA loans, a score of 690 or higher is often required.24 For asset-based loans like hard money, the credit score is far less important than the property’s value, and lenders may work with borrowers with much lower scores.29
How much of a down payment is required for a commercial property in 2025?
In the current market, expect to make a larger down payment than in previous years. For most conventional, CMBS, and bridge loans, a down payment of 25% to 40% (corresponding to a 60% to 75% LTV) is standard.11 The main exception is the SBA 504 program, which allows for a down payment as low as 10% for qualified owner-occupied businesses.25 For high-risk vacant land loans, down payments can be as high as 50%.35
Can I get a commercial loan with no operating history (for a new development)?
Yes, this is what a commercial construction loan is for. However, because there is no operating history, the lender’s underwriting will focus heavily on the project’s proforma financials, the “as-completed” appraised value, the feasibility of the market, and, most importantly, the developer’s experience and financial strength. It is one of the most difficult loans to qualify for.
What is a “balloon payment” and how does it work?
A balloon payment is a large, lump-sum principal payment due at the end of a loan’s term. It occurs when the loan’s amortization period is longer than its term. For example, a loan may have a 10-year term, but its payments are calculated as if it were going to be paid off over 25 years (a 25-year amortization). The borrower makes smaller monthly payments for 10 years, but at the end of the 10th year, the remaining principal balance is due all at once. Borrowers typically plan to pay this off by either selling the property or refinancing into a new loan.
What are typical closing costs for a commercial loan?
Closing costs for commercial loans are substantially higher than for residential mortgages and can range from 2% to 5% or more of the loan amount. These costs typically include appraisal fees, environmental and engineering reports, legal fees for both the borrower and lender, title insurance, survey costs, and loan origination fees or “points.”
Should I get a fixed-rate or floating-rate loan?
A fixed rate provides certainty and predictable payments, protecting you from future interest rate increases. It is ideal for long-term holds of stabilized properties. A floating (or variable) rate is tied to a benchmark index (like SOFR) and can change over time. Floating rates often start lower than fixed rates but carry the risk of rising in the future. They are best suited for short-term financing, like a bridge or construction loan, where the plan is to sell or refinance the property before rates have a chance to rise significantly.
