Financing is the lifeblood of commercial real estate investing, but getting commercial real estate loans isn’t necessarily a straightforward process.
In this guide, we’ll walk through the essential ways to finance a commercial real estate investment in 2025.
We’ll explore common challenges, financing options (from traditional bank mortgages to creative crowdfunding), best practices to boost your approval odds, and more.
Preparing to Get a Loan for Commercial Real Estate
Proper preparation will seriously improve your chances of approval and favorable terms.
Cover these bases to begin:
1. Organize Your Financials
Be prepared to provide documentation such as tax returns, bank statements, and financial statements for all existing properties or businesses.
2. Craft a Business Plan
A detailed business plan adds credibility, especially if you’re financing through a bank or SBA program.
Outline your investment strategy, the property details, and how you plan to improve or manage it. Include market analysis – show you understand the local market rents, competition, and trends.
3. Boost Your Credit and Qualifications
Your financial health matters, even in commercial deals. Banks and financial lenders will check your credit score, income, and net worth.
Before applying, improve your credit profile if needed. This includes:
- Check your credit report—dispute the report if there are any errors.
- Pay down any balance and credit utilization to at least below 30%.
- Make payments on time.
- Limit the number of credit applications within a short period. Too many applications bring your score down.
Get to Know Your Financing Options
Investors have a range of financing options when securing funding for a commercial real estate deal. Each has its pros and cons.
Here’s a rundown of the most common avenues to consider:
Bank Loans (Conventional Mortgages)
These are traditional loans from banks or credit unions for commercial properties.
- Pros: Generally offer the lowest interest rates and long amortization periods (e.g., 20-25 years), which helps maximize cash flow. You’ll have a stable monthly payment, especially if you get a fixed-rate loan.
- Cons: Banks have strict qualification criteria – they usually require strong credit, solid financials, and a significant down payment. The approval process can be slower and more complicated.
SBA Loans (Small Business Administration 7(a) and 504)
SBA-backed loans are an excellent option if you (or your tenant business) will occupy at least 51% of the property (they’re geared toward owner-operated real estate).
- Pros: SBA 7(a) and 504 loans often allow lower down payments and longer terms than conventional loans. Interest rates are competitive, and 504 loans are fixed-rate, which provides stability.
- Cons: The application process is notoriously detailed and can be slow. There is a lot of paperwork and documentation involved to meet SBA requirements. You also have to pay SBA guarantee fees and follow specific rules.
CMBS Loans (Commercial Mortgage-Backed Securities)
Also known as conduit loans, these are loans that get packaged into securities and sold to investors. They’re common for financing large-scale or portfolio properties.
- Pros: CMBS loans often have attractive fixed interest rates and can be non-recourse. They typically allow higher leverage—up to ~75% LTV is common, so you need less equity compared to some bank loans.
- Cons: CMBS loans are less flexible. They usually come with hefty prepayment penalties that make it costly to refinance or sell the property before the loan term ends.
Hard Money Loans
These are short-term, asset-based loans from private lenders (or funds), often used for quick acquisitions, rehabs, or when the borrower doesn’t qualify for traditional financing.
- Pros: Speed and flexibility. Hard money lenders can fund a deal in days or weeks, not months, because they focus more on the property’s value than your credit or income.
- Cons: Cost. Hard money comes with high interest rates and points (fees). It’s not uncommon to see interest in the 8%-12%+ range and upfront fees of 1-3% of the loan.
Bridge Loans
Bridge financing is similar to hard money in that it’s short-term, but commercial banks or specialty finance companies often offer bridge loans for transitional situations.
- Pros: A bridge loan can “bridge” the gap when you need to act quickly or the property isn’t stabilized yet. For instance, if you’re buying a commercial building that’s only 50% leased but plan to lease it up and refinance, a bridge loan provides funds for 12-36 months until you secure permanent financing.
- Cons: Bridge loans carry higher interest rates than permanent loans. They also typically require a clear exit strategy – lenders will want to know your plan for paying it off.
Private Equity and Partnerships
Instead of borrowing all the money, you can raise capital from investors by offering them an equity stake. This includes forming partnerships or joint ventures with other individuals or working with private equity real estate firms.
- Pros: Bringing in equity partners means you borrow less (or nothing at all), reducing your debt burden and monthly payments.
- Cons: You give up a share of ownership and profits. Equity investors expect a return on their investment, often a share of the cash flow and a cut of the profits when you sell.
Seller Financing
In some cases, the seller of the property may agree to finance part of the purchase price, effectively lending to you (the buyer) instead of you getting a full bank loan.
- Pros: Seller financing (also called owner financing) can be easier to qualify for—the seller may be more flexible than a bank on credit or income requirements, since their incentive is to sell the property.
- Cons: Not all sellers are willing or able to do this—they need to own the property free and clear (or have a small mortgage that can be paid off) and be comfortable receiving payments over time.
Crowdfunding and Online Platforms
Real estate crowdfunding has emerged as an alternative way to finance deals, especially for smaller investors or unique projects.
- Pros: It can provide access to funds from many people who each contribute a small amount. This means you might fund a deal without relying on one big loan or one partner – instead, dozens or hundreds of investors take a stake.
- Cons: Crowdfunding often requires you to market your project and comply with securities regulations. You will also share the returns with the crowd of investors, similar to any equity financing.
Best Practices: How to Get Loans for Commercial Real Estate Investments
Successfully securing financing is as much about preparation and strategy as it is about finding the right lender.
Here are some best practices to increase your odds of approval on favorable terms:
1. Do Your Homework on Lenders
Different lenders have different appetites. Shop around and choose a lender that fits your deal’s profile. Compare interest rates, loan terms, and closing timelines.
2. Demonstrate Strong Financials and Cash Flow
We touched on preparation, but when in the loan process, make it abundantly clear that the deal is financially sound.
Emphasize the property’s cash flow—a healthy rental income stream relative to the debt payments (a high DSCR) will make lenders comfortable.
Lenders love low risk; therefore, demonstrate that you’ve mitigated the risks.
3. Get Pre-Approved and Be Responsive
Start the conversation with lenders early and seek a pre-approval or term sheet based on your financials before you have a specific property (or early in the deal process).
Once you’re in the loan application process, be extremely responsive to information requests.
4. Work with Experts
Commercial transactions can be complex, and having the right team can save you from costly mistakes.
Engage professionals like:
- A commercial mortgage broker who can help you find the best loan and negotiate terms
- A real estate attorney to review loan documents and purchase contracts
- A financial advisor or CPA to help structure the deal in a tax-efficient way
5. Have a Plan B (and C)
Smart investors always consider fallback options.
Ask yourself:
- What if your planned bank loan falls through at the last minute?
- What if interest rates suddenly jump before you lock your rate?
- What if the appraisal comes in low?
5 Pitfalls to Avoid
There are also common mistakes and traps in financing that you’ll want to steer clear of:
1. Overleveraging
Avoid the pitfall of overleveraging by ensuring you have a comfortable cushion. Taking on too much debt can result in financial strain.
A property should still break even (or better) under reasonably stressed conditions (like a bit of vacancy or higher expenses).
2. Ignoring Loan Terms and Fine Print
Watch out for things like:
- Prepayment penalties
- Interest rate adjusters
- Balloon payments
- Covenants
3. Overestimating Income or Underestimating Expenses
Don’t bank on the absolute best-case scenario for rental income or occupancy. Lenders will typically underwrite using conservative figures, and so should you.
4. Not Preparing for Rate Changes
Another pitfall is neglecting to consider what happens if rates increase when you opt for a variable-rate loan.
If the margin for error is small, consider strategies like rate caps (a common practice in commercial adjustable loans) or refinancing to a fixed rate as soon as possible.
5. Skipping Due Diligence on the Lender
We often talk about lenders scrutinizing borrowers, but as a borrower, you should also scrutinize lenders. This is especially true with non-bank financing.
Check the reputation and track record of a hard money lender or crowdfunding platform you use.
Conclusion: Getting Commercial Real Estate Loans
You can tailor a solution that fits your investment goals by getting your finances and documentation in order and exploring a wide array of financing options—from traditional bank and SBA loans to creative seller financing and crowdfunding.
Remember that every successful real estate investor masters the art of financing. It’s not just about finding great properties; it’s about structuring the capital in a way that maximizes the upside and protects your downside
