Commercial mortgages and commercial property real estate loans

A commercial mortgage, or commercial real estate loan, is for buying, refurbishing, or refinancing properties meant for business use. These properties can include office buildings, retail spaces, and industrial warehouses. Like a residential mortgage, a commercial mortgage is secured by the property itself.

Residential Loans vs. Commercial Real Estate Loans

While commercial mortgages have similarities to home mortgages, there are key differences to note.

Terms vs. Amortization Schedule

Commercial loans usually have shorter terms than residential loans, ranging from five to 25 years. Sometimes, the loan term differs from the amortization schedule. For example, a loan might have a 10-year term with a 20-year amortization schedule. This means payments are spread over 20 years, but the loan must be paid off after 10 years, often requiring a large balloon payment at the end.

Percentage of Property Financed

Residential loans can finance up to 95%—or even 100%—of a property’s value. In contrast, commercial real estate loans typically finance only 70% to 80% due to the higher risk associated with commercial properties. Therefore, borrowers need substantial capital to cover the remaining property value, highlighting the need for a strong financial strategy when pursuing a commercial property loan.

Commercial Mortgage Rates

Commercial mortgage interest rates can be as low as 6.25%, making these loans a cost-effective form of capital. To estimate your commercial mortgage payments, try our commercial real estate calculator.

Types of Commercial Real Estate Loans

Conventional Commercial Mortgage

This traditional loan type requires a high credit score, a significant down payment, and an established business history.

SBA 504 Loans

Partially backed by the Small Business Administration, SBA 504 loans are for purchasing real estate. They offer favorable interest rates and longer terms with a lower down payment requirement, making them attractive to small businesses. The business owner must occupy at least 51% of the property.

SBA 7(a) Loans

SBA 7(a) loans can cover any business expense, including purchasing or refinancing commercial real estate. They often feature lower down payments and longer repayment terms than conventional loans, making them accessible to businesses with limited capital.