How to Get a Commercial Real Estate Loan

Getting a Commercial Real Estate Loan: The 6-Step Process

Securing commercial real estate financing is fundamentally different from getting a residential mortgage. Commercial lenders evaluate the property's income-generating ability as much as -- or more than -- the borrower's personal financials. Loan structures are more complex, timelines are longer, and the documentation requirements are significantly more demanding.

This guide walks through the six steps to get a commercial real estate loan, from initial financial assessment through closing, with the specific metrics, documents, and qualification thresholds that lenders evaluate. For current rate benchmarks across all major CRE loan types, see our commercial rates page.

Step 1: Assess Your Financial Position

Before approaching any lender, understand where you stand on the metrics that matter. Commercial lenders evaluate four primary financial dimensions:

Debt Service Coverage Ratio (DSCR)

DSCR measures whether the property generates enough income to cover debt payments. It is the single most important metric in CRE underwriting.

Formula: DSCR = Net Operating Income (NOI) / Annual Debt Service Use our DSCR calculator to run your numbers before approaching lenders. Most conventional commercial lenders require a minimum DSCR of 1.25x. SBA lenders may accept 1.15x with strong compensating factors.

Loan-to-Value Ratio (LTV)

LTV measures the loan amount relative to the property's appraised value.

Run different scenarios with our LTV calculator to understand how your down payment affects loan eligibility and rate pricing.

Borrower Credit and Net Worth

While CRE loans are primarily underwritten on the property, borrower strength still matters:

• Personal credit score: 680+ preferred by most lenders; 620 minimum for some programs
• Net worth: Lenders often want the guarantor's net worth to equal or exceed the loan amount
• Liquidity: 6-12 months of debt service payments in liquid reserves (post-closing)
• Experience: Prior CRE ownership and management experience significantly improves terms

Property Fundamentals

• Occupancy rate: 85%+ for stabilized properties; value-add deals underwritten differently
• Tenant quality: Creditworthy tenants with long-term leases improve underwriting
• Lease term remaining: Lenders discount income from leases expiring before loan maturity
• Location and market: Primary markets command better terms than tertiary markets
• Condition: Deferred maintenance reduces appraised value and increases lender reserve requirements

Step 2: Choose the Right Loan Type

Commercial real estate loans come in several structures, each suited to different situations:

For owner-occupied properties, SBA loans offer significantly better terms. See our guides on SBA 504 loans and SBA 7(a) vs. conventional for detailed comparisons.

Step 3: Find the Right Lender

Not all commercial lenders are created equal. The right lender depends on your deal size, property type, and timeline:

Banks and credit unions are best for borrowers with existing relationships, deals under $5M, and owner-occupied properties. They offer the most flexible underwriting and can often close faster than other sources. Community banks are often more accommodating for smaller deals ($500K-$2M) than national banks. CMBS lenders are best for stabilized investment properties over $2M where the borrower wants a non-recourse loan with a fixed rate. Underwriting is rigid and based on property metrics, not borrower relationship. SBA lenders are best for owner-occupied properties where the borrower wants low down payment and long fixed-rate terms. Work with a Preferred Lender Program (PLP) lender for faster processing. Bridge and private lenders are best when speed matters (closing in 2-3 weeks), the property needs repositioning, or the borrower does not qualify for conventional terms. Life insurance companies offer the best rates but are the most selective -- Class A properties in primary markets with low leverage and strong tenants. Get matched with lenders who specialize in your property type and deal size to save time and improve your chances of approval.

Step 4: Prepare Your Application Package

A complete, well-organized application package is the single biggest factor in loan processing speed. Commercial lenders typically require:

Property Documents

• Property financial statements (2-3 years of operating history)
• Current rent roll with lease expiration schedule
• Copies of all leases
• Property tax bills (2-3 years)
• Insurance certificates
• Capital expenditure history and budget
• Phase I Environmental Site Assessment (often ordered after application)
• Appraisal (ordered by lender)

Borrower Documents

• Personal financial statement for each guarantor
• 3 years of personal tax returns for each guarantor
• 3 years of business/entity tax returns
• Schedule of real estate owned (all properties)
• Entity organizational documents (operating agreement, articles)
• Resume or experience summary for each principal
• Business plan or executive summary for the acquisition

Deal Documents

• Purchase and sale agreement
• Sources and uses statement (where the money comes from and goes)
• Pro forma operating projections (3-5 years)
• Market analysis or comparable data

Preparation tip: Organize everything in a labeled digital folder structure before your first lender meeting. A borrower who arrives with a complete package signals competence and seriousness -- lenders respond accordingly.

Step 5: Navigate Underwriting

Once your application is submitted, the lender's underwriting team evaluates the deal. Understanding what they are looking for helps you anticipate questions and avoid surprises.

What Underwriters Analyze

Income verification: Underwriters will normalize property income -- removing one-time items, adjusting below-market rents to market rates, and haircut-testing occupancy. Do not inflate projections; underwriters will catch it and it damages credibility. Expense review: Expect scrutiny of property taxes (are they subject to reassessment upon sale?), insurance costs, management fees, maintenance reserves, and utility expenses. Underwriters typically apply a minimum management fee of 3-5% even if the property is self-managed. Cap rate and valuation: The underwriter's appraised value may differ from the purchase price. The appraisal uses comparable sales, income capitalization, and cost approaches. If the appraisal comes in below the purchase price, you will need additional equity. Check approximate values with our cap rate calculator. Stress testing: Lenders stress the deal -- what happens if occupancy drops to 75%? What if rates increase 200 bps at refinance? What if the largest tenant vacates? Strong deals survive stress tests; marginal deals get restructured or declined.

Common Underwriting Requests

Be prepared for follow-up questions:

• Explanation of any large deposits or withdrawals on bank statements
• Clarification of related-party transactions
• Additional documentation for entities in the ownership chain
• Letters of explanation for any credit events (late payments, collections, bankruptcies)
• Updated financial statements if the ones provided are more than 90 days old

Step 6: Close the Loan

Once the loan is approved and all conditions are cleared, closing involves:

1. Loan document review: Have your attorney review all closing documents before the signing date. Commercial loan documents are 100-200+ pages and contain material terms (covenants, default triggers, reserve requirements) that must be understood.

1. Closing costs: Budget for 2-5% of the loan amount in closing costs, including:

- Appraisal: $2,500-$10,000+

- Phase I Environmental: $2,000-$5,000

- Title insurance: varies by state and loan amount

- Survey: $2,000-$5,000

- Legal fees: $3,000-$15,000+

- Lender origination fee: 0.5-1.0% of loan amount

- Recording fees and transfer taxes: varies by jurisdiction

- SBA guarantee fee (if applicable): 2-3.75%

1. Funding: For standard acquisitions, funds are disbursed at closing through the title company. For construction loans, an initial draw is funded at closing with subsequent draws as work progresses. For SBA 504 loans, the bank portion funds at closing while the CDC debenture funds at the next monthly sale.

Common Mistakes to Avoid

Underestimating the timeline. Commercial loans take 30-90+ days. Do not sign a purchase agreement with a 30-day closing deadline unless you have a pre-approved lender ready. Build in at least 60 days for financing contingency. Inadequate reserves. Lenders want to see 6-12 months of debt service in liquid reserves after closing. If your entire liquidity goes to the down payment and closing costs, the deal may be declined. Ignoring the balloon. Most conventional CRE loans have 5-7 year terms with balloon payments. You will need to refinance at maturity. If rates are higher or the property has underperformed, refinancing may be difficult or expensive. Consider longer-term fixed options (CMBS 10-year, SBA 25-year, agency 30-year) to reduce refinance risk. Skipping the appraisal contingency. If the property appraises below the purchase price, you need more equity. Include an appraisal contingency in your purchase agreement to protect yourself. Not shopping lenders. Rate and term differences between lenders can amount to tens of thousands of dollars over the loan term. Get quotes from at least 3 lenders. Match with multiple CRE lenders through our platform to compare offers.

Frequently Asked Questions

What credit score do I need for a commercial real estate loan?

Most conventional CRE lenders require a minimum credit score of 680. Some lenders will go as low as 620 with strong compensating factors (low LTV, high DSCR, significant liquidity). SBA programs may accept lower scores with strong business fundamentals. The credit score matters more for smaller deals -- for larger loans ($5M+), property fundamentals drive the decision.

How much down payment do I need?

Typically 20-30% for conventional CRE loans, depending on property type and borrower strength. SBA 504 loans require as little as 10% for owner-occupied properties. Bridge lenders may accept 15-25% of as-is value. Multifamily agency loans (Fannie/Freddie) can go up to 80% LTV, requiring 20% down.

Can I get a commercial real estate loan with no money down?

True zero-down commercial loans are extremely rare. However, you can reduce out-of-pocket costs through: seller financing (seller carries a second position note), equity partners, SBA 504 structure (10% down with the CDC covering 40%), or bringing in a co-investor. Some creative structures exist but they increase complexity and risk.

How long does it take to get a commercial real estate loan?

Timelines range from 2-3 weeks for bridge loans to 60-90+ days for SBA and conventional bank loans. The biggest variables are document completeness, appraisal turnaround, and lender processing speed. See our SBA loan timeline guide for detailed breakdowns.

Do commercial real estate loans require personal guarantees?

Most do. Conventional bank loans almost universally require personal guarantees from all major principals. CMBS loans are the primary exception -- they are typically non-recourse, meaning the lender's remedy in default is limited to the property itself (with standard "bad boy" carve-outs for fraud, misrepresentation, and environmental liability). Life company loans may also offer non-recourse terms for strong deals.