Commercial real estate financing is not one product. Which structure fits depends on where the asset sits in its life cycle: buying it, stabilising it, holding it, or pulling capital back out. Choosing the wrong structure is the most expensive early mistake in commercial investing.
The main commercial real estate loan types
| Type | Purpose | Typical term |
|---|---|---|
| Acquisition loan | Purchase a stabilised income property | 5–10 years, longer amortisation |
| Permanent / term loan | Long-term hold on a performing asset | 5–10 years with balloon |
| Bridge loan | Acquisition before stabilisation, lease-up, repositioning | 6–36 months |
| Hard money | Fastest close; distressed or unfinanceable assets | Months |
| Construction loan | Ground-up or major renovation, funded in draws | Through completion, then refinance |
| Cash-out refinance | Release equity from an owned asset | Matches permanent terms |
| Owner-occupied commercial | Property housing your own business | Varies by program |
Matching the structure to the asset's stage
The cleanest way to choose is to ask where the property is in its life, not which loan sounds cheapest.
- Distressed or vacant. No income means no permanent lender. Bridge or hard money funds the acquisition.
- Under renovation or in lease-up. Income exists but is not yet stabilised. Bridge financing carries it until it is.
- Stabilised and leased. Permanent or acquisition financing at the best available pricing.
- Seasoned and appreciated. Cash-out refinance to recycle capital into the next deal.
- Ground-up. A construction facility with draws, then a takeout loan on completion.
The most common structural mistake: trying to buy a transitional asset with permanent financing. A permanent lender needs documented, stabilised income. If the property does not have it yet, the loan does not exist — and weeks spent discovering that are weeks the contract does not have.
What commercial real estate loans require
- Coverage. The property's net operating income measured against annual debt service. This is the primary test.
- Equity. Typically 20–35% depending on asset type, income strength, and sponsor experience.
- Sponsor experience. A track record with comparable assets. First-time commercial borrowers face tighter terms or narrower lender choice.
- Liquidity and net worth. Many commercial lenders set post-closing liquidity requirements and a net worth test relative to loan size.
- Asset quality. Condition, location, lease structure, and tenant credit all feed the underwrite.
Documentation checklist
- Purchase contract, or the existing note and payoff on a refinance
- Rent roll and current leases for every tenant
- Trailing 12-month operating statements, and year-to-date financials
- Pro forma showing your projected operations post-closing
- Personal financial statement and schedule of real estate owned for each guarantor
- Entity formation documents, operating agreement, and certificate of good standing
- Property insurance quote or existing binder
- Capital expenditure history and any planned improvements
Commercial files move at the speed of the least complete item. Assembling the rent roll and trailing statements before you apply saves more time than anything else you can do.
Third-party reports
These drive the commercial timeline more than underwriting does, and they cost real money:
- Appraisal. Commercial appraisals take longer than residential and typically use income, sales comparison, and cost approaches together.
- Environmental site assessment. A Phase I is standard on most commercial property; a Phase II follows only if the Phase I identifies a concern.
- Property condition assessment. An engineer's review of the building's structure and systems, common on larger assets.
- Survey. An ALTA survey is frequently required, and turnaround varies widely by market.
- Zoning and title. Confirming permitted use and clear title, including any easements affecting the asset.
Order them as soon as you have a signed term sheet. Waiting for full approval before ordering is the single most common cause of a blown commercial closing date.
The process
- Scenario and term sheet. Property, price, income, plan — then written terms.
- Application and deposit. Typically funds the third-party reports.
- Third-party reports ordered. Start here, not later.
- Underwriting. Property financials and sponsor documentation reviewed together.
- Loan committee or credit approval. Formal commitment issued.
- Closing. Entity documents, insurance, title, and funding.
Program parameters vary by lender and property type and change with market conditions. Figures here describe what is typical across the commercial and business-purpose market — they are not a quote. Send us the scenario for real numbers.
