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Commercial Real Estate Loans: How to Get The Money Your Business Needs


The value of business real estate has steadily risen since 2010, as an increased number of entrepreneurs, developers, and investors continue to buy commercial property. With more than $2.4 trillion dollars in commercial real estate loans being approved during that first three quarters of 2021, owning and developing business properties continues to be a popular venture. It is clearly a lucrative and stable investment as shown by the Deloitte 2022 Commercial Real Estate Outlook global study that indicates 80 percent of commercial property owners expect a revenue increase in 2022 compared to 2021, and 73 percent anticipate transactions to intensify.

As transactions and revenue increase, business-minded professionals would be wise to investigate opportunities in the commercial real estate space. Given the significant resources required to complete a transaction, industry leaders rely on low-interest rate commercial real estate loan products to help their goals come to fruition. If you are a business visionary interested in improving profits and adding a valuable asset to your portfolio, securing a commercial real estate loan can help make it happen.



What are Commercial Real Estate Loans?

Commercial real estate loans offer funding to help you purchase new properties for investment, expand your existing building and square footage, or refinance existing commercial real estate loans. They are secured by collateral — typically the commercial property — and lenders expect the real estate investment to generate revenue to pay for part or all of the loan over time. The range of commercial real estate loan products covers a great deal of ground. Specialized financing can be leveraged to purchase and develop land, purchase fully functional office buildings, expand an existing facility, orchestrate new construction projects, inject cash into an owner-occupied facility, or to refinance an existing commercial real estate loan.



How Do Commercial Real Estate Loans Work?

Commercial real estate loans work by providing businesses the funding needed to achieve their goals, and in turn, grow the economy. In many respects, the term “commercial real estate loans” serves as something of a catchall phrase for a wide variety of resources that help business owners purchase property, expand their business, and keep their business growing. With so many loan options available, it’s important to understand the differences between how the funds are delivered, required qualifications, fees, terms, and interest rates between all the options.

Lenders subject commercial real estate loans to heightened scrutiny because they present a higher risk than other products. But by understanding what lenders look for as well as the differences between the commercial real estate loans that are available, at the end of the day, you can feel confident in selecting the best loan for your business while receiving the necessary revenue to accomplish your goals.



Types of Commercial Real Estate Loans

It’s essential for industry leaders to conduct thorough due diligence about available financing before targeting a specific type of commercial real estate loan. A traditional lump sum payout may not be the best option for your specific needs. In fact, certain projects may not even qualify for loans structured in this fashion. These rank among the frequently employed commercial real estate loans most lenders make available.

Permanent Loans

A permanent loan usually serves as the first mortgage used to buy a commercial property. This class of commercial real estate loans generally involves a repayment schedule that ranges from five to 25 years. Many fall on the longer side as borrowers strategically position this overhead element as a low monthly installment. It’s also not uncommon for lenders to underwrite loans for 20 years or less if the property suffers from disrepair. Structured much like a traditional home mortgage, permanent loans are considered minimal-risk products, and they feature affordable low rates.

Business Term Loans

Another commercial real estate financing option that usually provides a lump sum to qualifying applicants are business term loans. This loan type is all about flexibility. The funds can be used for more purposes in addition to commercial real estate improvements or purchases and the repayment terms are also flexible. A small or mid-sized business may pursue this opportunity because the funds can be deployed to purchase equipment, rehabilitate a structure, and expand a space’s usable square footage. The money may also be leveraged to make strategic business investments that drive growth and profitability.

Bridge Loans

Much like the name implies, bridge loans help business professionals travel from point A to point B, financially speaking. This commercial real estate loan is designed to provide short-term funding to cover predictable revenue shortfalls or as stop-gap measures, while long-term financing is secured. This class of loan usually comes with relatively high interest rates and truncated repayment schedules, running from six months to three years. Borrowers can anticipate lenders requiring sufficient collateral to approve bridge loans.

Business Lines of Credit

A business line of credit works almost precisely like a home equity line of credit. Qualified borrowers generally enjoy low interest rates when opting for this type of funding. Funds are withdrawn to manage commercial necessities, and business professionals can replenish the fund by making timely payments. Unlike other commercial real estate loans, borrowers do not receive a lump sum.

It's crucial to maintain a solid business and personal credit score because lenders place a high value on that metric. Some people and organizations with less than perfect ratings may experience limited loan options. In these cases, they may take out hard money loans as a last resort and pay the higher interest rates and fees.

Another option that provides commercial real estate investors with an opportunity to purchase property regardless of their credit worthiness is owner financing. This occurs when the owner of a property for sale provides part or all the financing to the buyer directly once a substantial down payment has been received. Always make sure to consult with your local trusted lender for help determining which commercial real estate loan will help you accomplish your goals.

For an in-depth view of the most common loan types and how to find the best lender for your business, review our blog "6 Types of Commercial Real Estate Loans."



Does Buying Commercial Property Make Sense For Your Business?

Developers, investors, and entrepreneurs buy commercial property to augment personal wealth and further goals. The data indicates an increased number of people are securing commercial real estate loans based on lucrative returns on investments and stable revenue streams. People who buy commercial property incur a lower risk than involvement in a sometimes volatile stock market. That being said, every business investment presents benefits and risks. If you want to buy commercial property, it may be prudent to weigh the following pros and cons.

Pros of buying commercial property:

  • Income potential: Earning potential is the best and most obvious reason to invest in commercial property. Renting the available space to professional tenants will bring in a steady stream of reliable income. If you are buying commercial property for your own business, you will have the opportunity to build equity which can eventually be used as collateral if you decide to expand your business. If you decide to purchase your own property, additional tax deductions and benefits are another plus.
  • Crafting Lease Terms: The regulations governing commercial leases tend to be less restrictive than their residential counterparts. Beyond conforming with basic state and federal rules, commercial property owners have broad discretion to create favorable lease terms. If you buy commercial property, tenant leases can be structured to attract organizations that are reliable rent payers and present a low impact on infrastructure.
  • Equity: Companies that lease space are essentially giving away money. When an organization secures the financing to buy a commercial property, paying for the space helps build equity. Over time, that equity can be leveraged to secure a business line of credit. It also turns into profit should you decide to sell the property.

The act of purchasing a commercial building can be something of a game-changer, if everything goes well. That’s precisely why it’s critical to weigh potential cons before you buy commercial property.

Cons of buying commercial property:

  • Tenants: Professionals who buy commercial property to house businesses find themselves also functioning as a landlord. Being onsite means tenants may feel free to approach you with peeves such as limited parking, noise, lighting, and bathroom clogs. Beyond these sometimes intrusive distractions, the distance of business-to-business relations gives way to a semi-personal one.
  • Labor: Owner-occupiers too often assume tasks they otherwise would not handle as tenants. Dealing with broken glass in a parking area, graffiti on an exterior wall, or cigarette butts strewn about near entrances become an owner’s chore. Taking time to handle these issues results in lost business focus.
  • Financial Risk: When you buy commercial property, you absorb the financial risks associated with ownership. Slip and falls can lead to civil lawsuits, and severe weather events may damage the structure. Potential losses come with the benefits of ownership.

This is not to say potential negatives cannot be managed effectively. Outsourcing to a trustworthy property management outfit relieves owners of wide-reaching responsibilities. And by taking out full liability insurance, unfortunate accidents, injuries, or damage are covered.

If you are still unsure if now is the right time to purchase commercial property, review our blog "Ready to Buy Commercial Property? Review the Pros and Cons."



How are Commercial Construction Loans Different?

Commercial construction loans reinforce the fact that commercial real estate loan opportunities offer vastly different options. This type of business loan is perfectly geared toward investors and developers who wish to buy commercial property, clear the land, and build.

Individuals and organizations already in possession of a commercial building may also gain approval for this type of financing. The funds can be put to work expanding a non-residential building and rehabilitating an outdated structure, as the loan pays for the cost of materials, labor, architects, and engineering services. While those facets may seem similar to other resources, the way commercial construction loans work is the place they take a different path.

Unlike lump-sum business term loans and business lines of credit, commercial construction loans typically disburse funds based on contractors and suppliers meeting project thresholds. A detailed construction plan and timeline are created, and key stakeholders understand when their portion of the project gets funded.

For instance, landscapers would likely receive a check after the land is cleared, plumbers after their work passes inspection, and contractors involved with lengthy areas of the project see timely payments. Along with disbursing funds periodically, other significant differences include the following.

  • Interest Rates: Generally considered high-risk lending, commercial construction loans may be assigned interest rates as low as 2 percent or as high as 18 percent. The type of project, borrower’s experience, collateral, and other factors may influence rates and repayment terms.
  • Fees: Because lenders take on a larger role in commercial construction loans, additional fees may be appropriate. However, local lenders minimize the cost or waive some altogether.

Potential borrowers can anticipate gathering wide-reaching financial records as the application undergoes substantial vetting. But gaining access to financing and a successful build can yield high returns.

To explore commercial construction loans in more detail, review our blog "Commercial Construction Loans Demystified."



Commercial Real Estate Investing Strategies to Get You Started

If you are among the many considering purchasing a commercial property and are unsure how to proceed, experienced professionals have carved out methods that deliver results. Choosing the right commercial real estate investing strategies to get you started should be based on your experience, willingness to take risks, financial situation, and long-term goals. These are commercial investing strategies worth considering.

Warm Up To The Commercial BRRRR

The name may seem somewhat amusing, but the basic principles remain sound. The letters stand for Buy, Rehab, Rent, Refinance, Repeat, and the technique emulates that used by the residential house-flippers made famous on television shows. These are the basic steps.

  • Buy: Buy commercial property with an asking price below market value, using cash or minimal financing.
  • Rehab: Fix up the building, so its appraised value improves.
  • Rent: Lease as much space as possible using written agreements.
  • Refinance: With prompt equity created and a steady revenue stream, contact a lender and refinance the property.

With the money and profit you receive, repeat the processes by investing in another commercial property.

Develop a Parcel of Land

Purchasing raw land and building is usually reserved for people with experience in the construction trades. This sometimes-high-risk venture can produce lucrative results. It’s also not uncommon for developers and investors to assemble a team of experts and use collateral and cash to secure a commercial construction loan to fully fund the project.

Buy and Hold

Patient investors who prefer not to take major risks often buy commercial property, make steady improvements, and pay down a commercial real estate loan with rental income. As long as the property essentially pays for itself, rising values and equity position the investment for profitability. The conventional wisdom is that buying today and selling when the market reaches a peak maximizes investor profits.

These rank among the popular commercial real estate investing strategies that have been proven successful under the right conditions.

For additional investment strategies and tips on finding the right sites, review our blog "Commercial Real Estate Investing Strategies for Beginners."



How to Get Approved for Commercial Real Estate Loans

Gaining approval for a commercial real estate loan often proves a pivotal moment. That’s why it’s critical to be prepared to provide pertinent supporting information, financial records, and take any proactive measures available to improve your commercial real estate loan application.

For a full understanding of what lenders will be looking for on your application, review our blog "Commercial Real Estate Loans: What do Lenders Look For?"


Tips To Help You Get Your Commercial Real Estate Loan Approved

The most important tried-and-true method involves looking at the process from the lens of an underwriter. By placing yourself and your business under a microscope, and employing the following strategies, you can improve your approval chances.

  • Improve Your Credit Score: Creditworthiness remains a baseline metric across lending categories, commercial real estate borrowing among them. Lenders generally pull the borrower’s credit history, and FICO scores of 650 or higher are often needed for approvals. Potential borrowers may want to request a free copy of their credit report from Equifax, Experian, and TransUnion and takes step to improve the three-digit rating.
  • Improve Business Credit Score: Business credit scores are prepared by Equifax, Experian, and Dun and Bradstreet. Although the scoring methods are slightly different from FICO ratings, companies can also make late changes. For instance, paying down company debt could positively affect the rating before applying for a commercial real estate loan.
  • Collateral: This class of business loan almost always requires collateral. The underwriter’s concern revolves around risk. Offering additional collateral helps offset that concern.
  • Down Payment: Some look at down payments as having “skin in the game”. Increasing your down payment reduces borrowing needs and demonstrates a determination to bring a commercial real estate project to fruition.
  • Guarantors: A loan professional is tasked with considering how the funds will be recovered if a default occurs. By adding additional cosigners or a personal guarantor who possess assets and creditworthiness, multiple parties assume responsibility.

If your application appears borderline after thinking about it from the underwriter’s perspective, it may make sense to reduce the loan amount. Working within your approval bandwidth on your next loan, and then making on-time payments, will likely lead to greater opportunities.

For more tips to help your loan application get approved, review our blog "6 Reliable Tips To Get Your Commercial Real Estate Loan Approved."



Commercial Real Estate Loans: What You Need to Apply

The commercial real estate loan evaluation process tends to be quite rigorous. Borrowers must produce a significant amount of supporting documents that speak to their personal financial portfolio and that of the business entity. To simplify the efforts to prepare ahead of a meeting with a lender, it may prove fruitful to put together two separate folders. One pulls together the personal information an underwriter requires. The other focuses purely on business documents.

Personal Information For A Commercial Real Estate Loan

  • Driver’s License and Social Security Numbers
  • Financial Holdings of the Borrower
  • Copies of any Guarantors portfolio
  • Tax Returns for the Last 2-3 Years
  • Verification of Real Estate Holdings and Other Assets
  • Personal Credit History and FICO Score
  • Biographical Information of Borrower and Business Partners
  • Checking and Savings Account Statements

When compiling this information, imagine it from an objective point of view. Ask yourself whether someone with this level of credit, debt, income, and assets makes a good loan candidate. If you are unsure, always reach out to your local trusted lender before applying for a commercial real estate loan.

Business Information for a Commercial Real Estate Loan


Creating a clear and accurate picture of a company’s financial health and stability often proves challenging. That’s why loan processors task borrowers with gathering wide-reaching documents to support a commercial loan application. These rank among the standard items loan underwriters request.

  • Detailed Business Plan and Project Timeline
  • Profit and Loss Statements for the Last 2-3 Years
  • Articles of Incorporation, DBA Information, and Length of Operations
  • Business Credit Score and Complete History
  • List of Tangible and Real Estate Assets Used as Collateral

If you are applying for a commercial construction loan product, additional information will be necessary. These involve construction costs, project type, population density, demographics, and revenue expectations upon completion. As a first-time commercial real estate loan borrower, don’t hesitate to schedule an appointment or contact a reliable local lender to ensure you have the documentation and the resources needed to get the additional funding you are looking for.

For an application checklist to help you prepare the necessary paperwork, review our "Commercial Real Estate Loans: Application Checklist."



How to Apply for Commercial Real Estate Loans

When investors, developers, and business professionals look for the lowest rates and most favorable commercial real estate loan terms, they sometimes forget to review local lenders. One local lender group typically overlooked when it comes to business loans are credit unions.

Credit unions do not have to generate the high profit margins of larger corporations that must pay shareholders a substantial return on their investment. In fact, credit unions are not-for-profit organizations owned by their members with the goal of expanding access to low-interest borrowing opportunities to members and businesses within their community. This philosophy empowers local credit unions to pass along savings in the form of reduced fees, improved rates, and the most favorable terms possible.

Starting with your local credit union is a great place to begin your research, but always be sure to review all available options when it comes to finding the best commercial real estate loan product for the needs of your business. Comparing not only the products, but their loan requirements, rates, fees, and terms is an essential step that shouldn’t be missed.

At Carolina Trust Federal Credit Union, we know that sometimes, you need a little extra money to maintain and grow your business, and we get it. Whatever it may be, don’t worry— we’ve got a loan for that.


If you feel your business needs are not met by our Commercial Real Estate Loan option, please consider our Business Line of Credit, Term Loan, and Trade Finance options.



Business Line of Credit

Borrow the money your business needs, when you need it. Pay back only what you borrow with this simple access option.

Trade Finance

Facilitate business transactions easily with Letters of Credit. Guarantee international shipments, or use them for cash deposits or performance bonds.


Term Loan

Get growing and finance your business needs with a fixed payment and flexible terms for up to 60 months.