The best commercial real estate loan rates typically start at around 6% and can go up to 15% or even higher. Rates can vary depending on the type of loan you’re getting, the lender you choose, and your qualifications, such as your credit score, time in business, down payment, and business revenue. Commercial real estate (CRE) loans can be obtained from different sources, such as the Small Business Administration (SBA), conventional banks, and hard money lenders.
Type of Loan | Average Commercial Mortgage Rates |
|---|---|
SBA 7(a) Loan | 10% to 12.5% |
SBA 504/CDC Loan | 6% to 6.5% |
Conventional Bank Loan | 8.5% to 12% |
Hard Money & Bridge Loan | 10% to 15% |
Using one of the best CRE loan providers can save you time and money. These providers offer a variety of programs with competitive rates and fees. Many also have flexible qualification requirements to cater to startups and borrowers with low credit scores.
SBA 7(a) Loans
Who an SBA 7(a) Loan Is Right For
An SBA 7(a) loan is the most common type of loan issued by the SBA. Loan proceeds can be used for purchasing real estate, land, and buildings. You can also use this loan to cover costs associated with constructing and renovating a building, including self-storage financing.
Before you apply for this loan, you should know that SBA 7(a) loans carry a prepayment penalty for the first three years. A prepayment penalty also applies if you voluntarily repay 25% or more of the outstanding balance of the loan. The prepayment penalty is 5% during the first year, 3% during the second year, and 1% during the third year.
To be eligible, you must meet the general SBA requirements, which include operating as a for-profit business, conducting business in the United States, and having been unable to obtain financing from other lenders. Other requirements, such as credit score and time in business, may vary based on the lender you choose, but it’s recommended that you have a score of 680 or higher and at least 2 years’ time in business to improve your chances of getting a loan.
SBA 7(a) loans offer up to $5 million in financing. You’ll need a down payment of at least 10%, and repayment terms for commercial loans extend for as long as 25 years. To learn more, you can read our guide on how to apply for an SBA loan.
If you’re ready to apply, you can also consider applying with SBG Funding, a provider that offers competitive rates and easier qualification requirements than many competitors.
SBA 504 Loans
Who an SBA 504 Loan Is Right For
SBA 504 loans are available through Certified Development Companies (CDCs) and can be used to fund assets that promote job and business growth. Examples include purchasing buildings, constructing new facilities, and improving land.
This loan requires that you sign two separate Notes for the loan, one for the lender portion and the other for the CDC portion. Your business must have had an average net income of less than $5 million for the past two years, along with a net worth that doesn’t exceed $15 million. Qualified businesses can get up to $5 million in funding, although certain energy projects allow for up to $5.5 million per project on up to three projects total.
While the SBA does set some general eligibility criteria, individual lenders can have additional requirements. For this reason, specific requirements for things like credit score, time in business, and debt service coverage ratio can vary.
To help walk you through the process, you can work with an SBA broker like Lendio. SBA brokers work with a network of lenders and can walk you through the process to improve your chances of getting approved. Brokers can also give you insight into specific qualification requirements.
Conventional CRE Loans
Who a Conventional Commercial Loan Is Right For
Banks issue a large volume of CRE loans, which can be used to finance a property that will be used for business purposes, such as an office space, warehouse, or manufacturing facility. Additionally, banks offer short-term commercial bridge loans that can allow you to acquire a property while you search for a more permanent source of financing.
A big advantage of getting a CRE loan through a bank is that the available loan amounts usually exceed those available from loans that are backed by the federal government, such as SBA loans. Rates are also competitive but, in exchange, the qualification requirements tend to be very strict.
You’ll typically need to have strong credit, have an established history of conducting business, and be able to show that your business is performing well. It’s recommended that you have a credit score above 700, more than three years’ time in business, and a debt service coverage ratio greater than 1.25x.
If you meet those requirements, U.S. Bank is an excellent provider to consider for long-term owner-occupied CRE loans.
Hard Money Loans
Who a Hard Money Loan Is Right For
Hard money loans, including bridge loans and mixed-use loans, are a popular alternative to investment property financing and can be a good option if you’re unable to obtain funding elsewhere. This can be due to low credit, or because the property condition doesn’t meet the requirements of a traditional lender. These loans are often used by fix-and-flip and fix-and-hold investors.
Typically, loans are short-term and range from several months to three years. Hard money loans can come with high rates and fees but can give a business owner the opportunity to acquire commercial property and fund repairs. Fix-and-flip investors can use this type of loan to purchase a property in need of repairs at a low price. Once the repairs are completed, they’ll sell the property for a profit, at which point the loan will be paid off. Fix-and-hold investors often replace a hard money loan with a permanent source of financing after repairs are completed.
Qualification requirements for a hard money loan usually revolve around prior flipping experience and credit scores. Although there are providers that can finance those with no prior flipping experience, you’ll have a much better chance of getting approved with a track record of three successful flips and a credit score of at least 650.
An advantage of a hard money loan is that it can be funded quickly. Some of the best hard money lenders can fund in as little as 10 days. If you’re considering this type of loan, we recommend looking at Kiavi for its low rates and fast funding speeds.
How To Get the Best Commercial Loan Rates for Real Estate
When it comes to getting a small business loan, the rate you get will be determined by things like your credit score and the amount of industry experience you have. However, there are also external factors that can also play a role:
- Type of CRE loan: Different types of loans will have varying ranges of rates offered. Loans that have strict requirements, such as good credit and collateral, will typically be able to offer lower rates because of the reduced risk to the lender.
- Condition of property being acquired: Properties in good condition can be resold more easily. This reduces the lender’s risk especially if the property is used as collateral for a loan. If you fail to make payments in a timely manner, the lender can foreclose and resell it to cover its losses.
- Your business qualifications: Common requirements revolve around your company’s annual revenue, time in business, and credit score. Highly qualified businesses represent a lower risk to lenders, which typically leads to more competitive rates being offered.
- Loan terms requested: Loan terms that can impact the rate you get include the loan amount, length of the loan, and whether you want a fixed or variable rate.
- Market rates: Economic conditions can impact the general range of rates available for loans. As the cost of borrowing money becomes more expensive for banks, the increased costs typically are passed on to borrowers.
Our guide on how to get a small business loan will help prepare you. It covers the process and what you can expect after applying.
How Much Do Rates Change Over Time?
Although rates have risen over the past year, they’re still low from a historical standpoint. Rates on many types of loans fluctuate with the US prime rate, and the following chart shows its changes since 1970.
![Board of Governors of the Federal Reserve System (US), Bank Prime Loan Rate [DPRIME]](https://fitsmallbusiness.com/wp-content/uploads/2021/11/Screenshot_changes_in_the_prime_rate_since_1970.png)
Board of Governors of the Federal Reserve System (US), Bank Prime Loan Rate [DPRIME], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PRIME, February 22, 2023
Bottom Line
The rate you get on a CRE loan will vary depending on your business qualifications and loan type. Businesses with a good credit score, strong cash flow, and track record of success usually will qualify for lower rates. Loans that require collateral or a large down payment also tend to offer more competitive rates and fees. Market conditions can also have an impact on rates.
Regardless of these factors, it’s always a good idea to shop rates with multiple lenders so that you can get the best loan possible. You can use a commercial loan calculator to see if you can afford the monthly loan payments. If financing a property isn’t right for you, you can also consider leasing commercial property, and our article on how to lease commercial real estate will guide you.
