Understanding Your Loan Terms

Commercial loan terms can be dense. Here's what to focus on and what questions to ask.

Interest Rates

Fixed rate: Your rate stays the same for the loan term. Predictable payments. Most common for SBA and conventional CRE. Variable rate: Rate moves with the market (usually tied to Prime or SOFR). Lower initial rate, but payment can go up. Common in bridge loans and lines of credit. Rate type matters more than rate: A 1% lower rate on a 3-year loan matters less than a well-structured rate lock. Ask about prepayment flexibility and rate caps.

Amortization vs. Loan Term

Amortization = how long it takes to pay off the loan (e.g., 25 years) Loan term = when the loan must be paid off or refinanced (e.g., 5 years)

A 25-year amortization with a 5-year term means you make payments as if paying over 25 years, but you'll need to refinance or pay off the balance in year 5. Watch out for balloons.

Key Fees

Origination fee: 0.5-2% of loan amount, sometimes negotiable
Appraisal: $3,000-$8,000 typically
Environmental report: $1,000-$3,000 for commercial
Legal fees: Varies by deal complexity
Prepayment penalty: 0-5% in early years; ask what's negotiable

What to Negotiate

Origination fee
Prepayment flexibility
Rate lock terms
Guarantor requirements

Your broker advocates for you — ask them to push back on terms that don't feel right.