Today we'll explain how lenders evaluate these loans, what financing routes are available in 2026, and how to match the right one to your property and timeline.
How Commercial Real Estate Financing Works: LTV, DSCR, and Terms
A commercial lender doesn't evaluate you the way a home mortgage lender does. They're not mainly looking at your personal paycheck. What they look at is the property, and two numbers decide most of the conversation. These are loan-to-value (LTV) and debt service coverage ratio (DSCR).
LTV is the loan divided by the property's appraised value. Banks cap this ratio at around 65-80%, though SBA 504 deals can go as high as 90% for owner-occupants. The lower the LTV, the less risk for the lender, and usually the better the rate.
DSCR works differently. It's net operating income divided by annual debt payments. Anything below roughly 1.20 is a hard pass for most lenders. If the ratio is below 1.0, the rent and other income the property brings in isn't enough to cover the loan payments on its own, which is one of the biggest red flags for lenders.
Conventional Bank Loans and Commercial Mortgages
A conventional commercial mortgage is the simplest of these loan types. A bank lends a lump sum secured against the property, and the loan is repaid on a set schedule. Terms run 5 to 20 years, but amortization often stretches to 25 or 30, so a balloon payment usually waits at the end.
For a commercial real estate, the down payment is about 20%-35% and rates range from 6.5% to 9.5%. Banks typically want a credit score above 680 and several years of solid financial history.
If you meet these requirements, this is usually the cheapest money on the list, given that the property's already stabilized and earning.
SBA 504 and 7(a) Loans for Owner-Occupied Property
These two SBA programs help small businesses buy property even when the business doesn't meet every requirement a bank would normally verify. But they're not interchangeable, they serve different situations.
A 504 loan combines money from three sources. A bank covers about 50% of the total cost. A Certified Development Company, a nonprofit that partners with the SBA, covers another 40%, backed by an SBA guarantee, which is why that portion can be priced below market. You cover the remaining 10% yourself. That CDC portion often prices below market, with financing reaching $5.5 million. Still, there's the catch: closings take 60-90 days, and your business needs to occupy at least 51% of the property itself.
The 7(a) loan is more flexible than the 504. One loan helps cover the property plus other needs like equipment or working capital. Down payments are as low as 10%, with terms up to 25 years. The rate floats with Prime plus a spread your lender sets, usually between 8.5% and 12%.
Short-Term Financing for Fast Capital
When a commercial real estate opportunity moves faster than traditional lenders can approve funding, short-term financing fills the gap. These fast cash options are built for speed, giving investors and developers access to capital in days rather than the weeks or months a conventional bank loan often requires. Bridge loans, hard money loans, and short-term commercial loans are among the most common tools, each designed to cover immediate needs like closing on a property, funding renovations, or securing a deal before permanent financing is arranged. These services at a fast pace are offered by Chase, Loans Bear, American Express & CitiBank. Approval from these companies typically depend more on the value of the property and the strength of the exit strategy than on lengthy credit reviews, which is why these loans appeal to borrowers who need to act quickly. Interest rates tend to run higher and repayment terms are shorter, usually ranging from a few months to a couple of years, so they work best as a strategic, temporary solution rather than a long-term commitment.
Other Routes: CMBS, Agency, Hard Money, and Mezzanine
CMBS (Commercial Mortgage-Backed Securities) loans, sometimes called conduit loans, get combined with many other loans and sold off to investors, rather than the bank keeping the loan on its own books long-term. With that, lenders can write bigger checks, sometimes $2 million to $50 million or more, at fixed rates around 6-8%. They're non-recourse, so a default puts the property at risk but generally not your other assets, though paying them early may come with some penalties.
Agency loans come from Fannie Mae or Freddie Mac, but only for apartment buildings with five or more units, offering long amortization and rates hard to beat elsewhere.
Hard money is another story. It's expensive, fast, and it barely looks at your credit score. Rates vary from 10% to 15%. Approval takes about a week, because the lender's just betting on the property's value.
Mezzanine debt fills the gap between your main loan and your own cash. If the property gets sold or the deal fails, the primary lender gets paid back first, then the mezzanine lender, and whatever's left over goes to you.
How to Choose the Right Financing
No advice or explanation matters until you match it to your situation. You should choose, considering speed, occupancy, and how stable the property's income already is.
If you're racing to close on something distressed in two weeks, go for bridge or hard money, expensive as it is. Buying a building your own business will occupy usually favors SBA on pure cost. Owning something already stable and cash-flowing, where the goal is just the cheapest capital available, is where conventional or CMBS financing tends to win.
There's no one-size-fits-all loan, just the one that aligns with what you're doing and when you need to close.
Final Thoughts
The right answer depends on your specific deal and timing. What works for a fully-leased apartment building won't work for a distressed strip mall closing next month, and it works the other way around too. Make sure you know your LTV, DSCR, and the speed-versus-cost tradeoff for each loan type. It'll place you in a stronger position at the negotiating table so you won't have to accept the first rate you qualify for.
Frequently Asked Questions
What credit score do you need for a commercial real estate loan?
There's no fixed number, as requirements vary by lender. Banks want something in the 680+ range for a conventional loan. SBA lenders may approve you with less, sometimes around 640. Bridge and hard money lenders don't really look at your score, their main focus is the property.
How much down payment do you need for commercial property?
There are no established requirements, it depends on the loan type. SBA lets owner-occupants in with as little as 10% down. A regular bank loan usually wants 20% to 35%. Bridge and hard money lenders usually ask for more, up to 40%, since they're skipping most of the paperwork-heavy verification a bank would do.
What is the difference between a bridge loan and a permanent loan?
A bridge loan is temporary, 6 months to 3 years, used to close fast or stabilize a property before it qualifies for something better. A permanent loan is different: the long-term mortgage, usually 10 to 25 years, that follows once the property's earning steady income. Bridge loans are quick and pricier; permanent loans are slower but cheaper.
Author information:
Ashley Bennett is a financial writer at Loans Bear. She is dedicated to making the borrowing process feel manageable rather than overwhelming. Bennett has a talent for breaking down complicated topics into logical, step-by-step explanations, so even first-time borrowers can follow along and feel confident understanding what they read. At Loans Bear, she oversees how the entire loan process is presented. Ashley continually refreshes practical knowledge, so every explanation stays accurate and easy to follow even as loan terms, products, and regulations evolve.
