Conventional Commercial Loan

Last Updated: 03/24/2024

Loan Highlights

Suitable for established businesses, real estate investors, or property owners with strong financials and history.
Also ideal for borrowers seeking stable, long-term financing for various commercial properties, including office buildings, retail centers, industrial facilities, and multifamily housing.
Offer flexibility and speed, making them ideal for investors or developers needing immediate financing for commercial real estate transactions.
Ranges from $250,000 to $6,000,000, depending on property value, location, and borrower qualifications (can be higher on case by case basis).

Federal Fund Rate + 2.5% Margin

*The mortgage interest rate calculation above is estimated.

Fixed-rate or variable-rate financing with terms typically ranging from 5 to 25 years, depending on property type and borrower preferences.
Loan-to-value (LTV) ratio varies but is typically up to 70% to 80% for real estate acquisitions and refinancing.
Amortization period up to 30 years or shorter terms with balloons for certain property types or borrower profiles.
Flexible repayment options, including interest-only periods, balloon payments, or fully amortizing schedules.
Can be used for various commercial property types, including office buildings, retail centers, industrial properties, and multifamily housing.

Eligible properties: Conventional commercial loans can finance various property types, including office buildings, retail centers, industrial facilities, multifamily housing, and mixed-use properties.
Borrower qualifications: Borrowers must demonstrate financial stability, strong creditworthiness, sufficient collateral, and a proven track record in commercial real estate ownership or management.
Collateral: Properties being financed serve as collateral for the loan, with lenders conducting thorough due diligence to assess property value and market potential.
Minimum DSCR Ratio: 1.25% (Debt-Service-Coverage Ratio)
Property appraisal and inspection may be required to assess value and condition.
Documentation:
- Typical Documents: Typically full documentation (full docs) including property financials (last 2 years P&L), renovation plans, borrower financial statements (last 2 years tax returns and P&Ls), and legal documents.
- Borrowers may also need to provide evidence of available equity, a clear exit strategy, and a viable plan for property stabilization or value enhancement.

Commercial Real Estate Lines of Credit: Offered by some lenders to provide businesses with access to revolving credit lines secured by commercial properties, allowing for flexibility in financing working capital or property improvements.
Commercial Real Estate Bridge Loans: Provide short-term financing for property acquisitions or renovations, with the intention of refinancing with a conventional commercial loan once the property is stabilized or value-enhanced.

Conventional Commercial Loans are funded by banks, credit unions, and non-bank lenders, with lending decisions based on borrower qualifications, property characteristics, and lender guidelines.

Common misunderstandings with Commercial Bridge Loans include:
- Higher costs: Bridge loans typically come with higher interest rates and fees compared to traditional bank loans due to the short-term nature and increased risk for lenders. Borrowers should carefully review loan terms and assess the overall cost of financing before proceeding with a bridge loan.
- Limited availability: Bridge loans may have stricter qualification requirements and may not be available from all lenders, requiring borrowers to shop around for suitable options. Borrowers should work with experienced lenders or advisors familiar with bridge loan financing to find the best fit for their needs.
- Importance of exit strategy: Borrowers should have a clear plan for how they will repay the loan at the end of the term, such as through property sale, refinance, or other means. Failure to do so could result in financial strain or the need to extend the loan term, potentially leading to higher costs or other challenges.