Commercial real estate financing works differently from residential mortgages, and there are several main paths depending on the buyer and property type. Conventional commercial loans, typically offered through banks and credit unions, usually require 20-30% down and are underwritten based heavily on the property’s income (debt service coverage ratio) as well as the borrower’s financial strength.
SBA loans are a popular option for owner-occupied commercial property, meaning the buyer’s business will occupy at least 51% of the space. The SBA 504 loan is specifically structured for real estate and equipment purchases, often allowing as little as 10% down with a below-market fixed rate on a portion of the loan. The SBA 7(a) loan is more flexible and can also be used for real estate along with working capital or business acquisition needs.
Bridge loans offer shorter-term, higher-interest financing useful for buyers who need to close quickly or who plan to reposition a property (through renovation or lease-up) before refinancing into permanent financing. These are more expensive but provide speed and flexibility that conventional financing doesn’t.
Seller financing is also worth considering, particularly for smaller commercial deals or properties that are harder to finance conventionally — the seller acts as the lender, which can mean more flexible terms but usually at a higher interest rate than a bank loan. Whichever route fits, commercial lenders will scrutinize the property’s income history and the borrower’s experience with similar property types, so having a clear business plan and financial documentation ready significantly speeds up the process.