Commercial loans can be used for a wide range of business and real estate needs.
That can include:
- Purchasing commercial property
- Refinancing commercial real estate
- Business expansion
- Construction
- Investment property
- Owner-occupied property
- Acquisitions
- Working capital
- Equipment
- Debt restructuring
The right type of commercial loan depends on what the money is being used for, the strength of the borrower, the property or collateral, and the cash flow of the business.
There is no single commercial loan that works for every situation.
What Is a Commercial Loan?
A commercial loan is financing used for business purposes.
Some commercial loans are secured by real estate.
Others may be based more heavily on business cash flow, collateral, or the strength of the borrower.
Commercial financing can include:
- Commercial real estate loans
- SBA loans
- USDA Business & Industry loans
- Equipment financing
- Working capital loans
- Lines of credit
- Construction loans
- Private money loans
- Bridge loans
- Hard money loans
The structure depends on the transaction.
Commercial Real Estate Loans
Commercial real estate financing is used to purchase or refinance properties such as:
- Office buildings
- Retail centers
- Warehouses
- Industrial properties
- Medical buildings
- Apartment buildings
- Mixed-use properties
- Self-storage facilities
- Hotels
- Restaurants
- Other income-producing real estate
The lender will usually look at both the borrower and the property.
That can include:
- Property value
- Loan amount
- Debt service coverage
- Occupancy
- Rental income
- Borrower credit
- Business financials
- Down payment
- Property type
- Location
A strong property does not always mean automatic approval.
The lender still wants to know whether the transaction makes sense.
Owner-Occupied Commercial Real Estate
Owner-occupied commercial real estate is property used primarily by the business that owns it.
Examples might include:
- A contractor buying a warehouse
- A dentist purchasing an office
- A manufacturer buying an industrial building
- A restaurant purchasing its own location
- A trucking company buying a yard or facility
These transactions may qualify for different programs than investment commercial real estate.
Owner-occupied properties may also have access to SBA financing in some situations.
Investment Commercial Real Estate
Investment commercial real estate is property primarily owned for rental income or investment purposes.
The lender may focus heavily on:
- Property income
- Expenses
- Occupancy
- Lease terms
- Debt service coverage
- Property condition
- Borrower experience
The property’s ability to support the debt is a major part of the decision.
What Is Debt Service Coverage Ratio?
Debt service coverage ratio, often called DSCR, is one of the most important numbers in commercial real estate financing.
It measures whether the property or business generates enough income to cover the loan payments.
In simple terms, the lender wants to know:
Does the property make enough money to comfortably pay the debt?
If the cash flow is weak, the lender may:
- Reduce the loan amount
- Require more money down
- Ask for additional collateral
- Decline the transaction
Different lenders have different DSCR requirements.
How Much Down Payment Is Required?
That depends on the program.
Commercial loans often require more money down than residential mortgages.
The amount can depend on:
- Property type
- Borrower credit
- Business strength
- Loan program
- Occupancy
- Property income
- Loan-to-value
- Experience
- Overall risk
Some transactions may require 10% down.
Others may require 20%, 25%, 30%, or more.
The stronger the deal, the better the financing options may be.
Can You Get a Commercial Loan With Bad Credit?
Possibly.
Bad credit can make commercial financing more difficult, but it does not always eliminate every option.
Some lenders may focus more heavily on:
- Property value
- Cash flow
- Down payment
- Business revenue
- Additional collateral
- Equity in the property
- Borrower experience
Traditional banks may be more credit-sensitive.
Private lenders may be more focused on collateral and equity.
That does not mean private financing is always better.
It simply means different lenders look at risk differently.
Commercial Loans for Self-Employed Borrowers
Self-employed borrowers can qualify for commercial financing.
The lender may request:
- Business tax returns
- Personal tax returns
- Profit and loss statements
- Balance sheets
- Bank statements
- Rent rolls
- Personal financial statements
- Business debt schedules
Some programs require full documentation.
Others may have more flexible underwriting.
It depends on the lender and transaction.
Commercial Loans for Business Expansion
A commercial loan may be used when a business wants to expand.
That might include:
- Opening another location
- Purchasing a larger building
- Renovating existing space
- Buying equipment
- Adding employees
- Acquiring another business
- Increasing inventory
- Funding a major contract
The type of financing should match the use of funds.
For example, financing a building with short-term working capital usually does not make sense.
Long-term assets should generally be matched with longer-term financing when possible.
Commercial Construction Loans
Commercial construction financing may be available for:
- Ground-up construction
- Major renovations
- Tenant improvements
- Property redevelopment
- Expansion projects
Construction loans are usually more complicated than standard purchase loans.
The lender may review:
- Construction budget
- Plans
- Permits
- Contractor experience
- Borrower experience
- Project timeline
- Completed value
- Equity contribution
- Exit strategy
Funds are often disbursed in stages as construction progresses.
Commercial Bridge Loans
A commercial bridge loan is short-term financing designed to solve a temporary problem.
For example, a borrower may need to:
- Purchase a property quickly
- Renovate a building
- Stabilize occupancy
- Refinance an existing loan
- Wait for permanent financing
- Complete a sale
Bridge loans can be useful when timing is more important than getting the lowest possible rate.
They are usually intended as temporary financing.
There should be a clear exit plan.
Private Money and Hard Money Commercial Loans
Private money or hard money can be useful when a traditional lender will not work.
These loans may focus more heavily on the value of the collateral.
They may be used when:
- Credit is weak
- The property needs work
- The borrower needs to close quickly
- Income documentation is difficult
- There is significant equity
- The transaction is unusual
Private money is generally more expensive than conventional financing.
It should usually be used when there is a reason traditional financing does not work.
[Learn More About Private & Hard Money Loans]
SBA Commercial Loans
SBA financing can be a strong option for qualifying businesses.
Depending on the program, SBA financing may be used for:
- Commercial real estate
- Business acquisitions
- Equipment
- Working capital
- Construction
- Expansion
SBA loans can sometimes offer lower down payments and longer terms than conventional commercial loans.
The tradeoff is usually more documentation and a more involved approval process.
USDA Business & Industry Loans
USDA Business & Industry financing may be available for qualifying businesses in eligible rural areas.
These programs can sometimes be used for:
- Real estate
- Equipment
- Business acquisitions
- Working capital
- Expansion
- Refinancing
The business does not have to be a farm.
A lot of people assume USDA financing is only for agriculture.
That is not the case.
The location and transaction need to meet program requirements.
[Learn More About USDA Business & Industry Loans]
Commercial Loans for Business Acquisitions
Commercial financing may also be used to purchase an existing business.
The lender may look at:
- Purchase price
- Business cash flow
- Historical financials
- Industry
- Buyer experience
- Down payment
- Business assets
- Seller financing
- Goodwill
Business acquisitions can be more complicated because part of the purchase price may be tied to goodwill rather than hard assets.
The stronger the business cash flow and buyer experience, the easier the transaction may be.
Commercial Refinancing
A commercial refinance may make sense when a borrower wants to:
- Lower payments
- Replace short-term debt
- Pull cash out
- Refinance a balloon payment
- Consolidate business debt
- Improve loan terms
- Move from private financing into conventional financing
The lender will look at the current property value, loan balance, income, and reason for the refinance.
Cash-out transactions may have stricter requirements.
Can You Get Cash Out of Commercial Real Estate?
Possibly.
Commercial cash-out refinancing may allow a business owner or investor to access equity in a property.
The amount available depends on:
- Property value
- Current loan balance
- Cash flow
- Loan-to-value
- Property type
- Credit
- Overall transaction strength
Cash-out proceeds may be used for business purposes depending on the loan program.
What Do Commercial Lenders Look At?
Commercial lenders usually look at the entire transaction.
That may include:
- Credit
- Business revenue
- Tax returns
- Property value
- Debt service coverage
- Down payment
- Equity
- Time in business
- Industry
- Borrower experience
- Collateral
- Existing debt
- Liquidity
Some lenders care more about cash flow.
Others care more about collateral.
Others are very credit-sensitive.
That is why lender selection matters.
Do Commercial Loans Require Tax Returns?
Many do.
Traditional banks and conventional commercial lenders often want tax returns and financial statements.
But not every commercial loan uses the same documentation.
Some lenders may use:
- Bank statements
- Property cash flow
- DSCR
- Asset-based underwriting
- Alternative documentation
That does not mean documentation is unnecessary.
It just means the type of documentation may vary.
How Long Does a Commercial Loan Take?
Commercial loans usually take longer than simple equipment or working capital transactions.
The timeline depends on:
- Loan size
- Property type
- Appraisal
- Environmental reports
- Title
- Financial statements
- Underwriting
- Loan program
- Borrower responsiveness
A straightforward conventional commercial loan may still take several weeks.
More complicated transactions can take longer.
Private money or bridge financing may move faster.
What Documents Are Usually Needed?
The exact list depends on the transaction.
Common documents may include:
- Loan application
- Personal financial statement
- Business financial statements
- Tax returns
- Bank statements
- Rent roll
- Leases
- Property information
- Purchase contract
- Business debt schedule
- Entity documents
- Driver’s license
The lender may request additional documentation once the file is reviewed.
Why Work With a Commercial Loan Broker?
Commercial lending is not one-size-fits-all.
One lender may love a transaction that another lender will not touch.
A bank may be strong on owner-occupied commercial real estate but weak on investment property.
Another lender may specialize in:
- Apartment buildings
- Industrial property
- Hotels
- Construction
- SBA loans
- USDA loans
- Private money
- Bridge financing
My job is to look at the transaction and determine which lenders may be the best fit.
The goal is not to send the deal everywhere.
The goal is to find lenders that actually make sense for the transaction.
What Information Do I Need to Review a Commercial Loan?
A good starting point is:
- Loan amount
- Property type
- Purchase or refinance
- Property value or purchase price
- Down payment or equity
- Business revenue
- Property income
- Time in business
- Approximate credit
- Use of funds
- State
- Whether the property is owner-occupied or investment
With that information, I can usually get a much better idea of which direction makes sense.
Need a Commercial Loan?
If you are purchasing, refinancing, expanding, or trying to finance a commercial property or business project, tell me what you are trying to accomplish.
You do not need to know the exact loan program.
That is part of what I help with.
Start with the basics:
- What are you financing?
- How much do you need?
- What is the property or business worth?
- How much cash or equity do you have?
- What does the business or property generate?
From there, I can help determine which commercial financing options may make sense.
Call or text Shawn at (714) 271-8524 or email Info@TheBroker.Finance to discuss your commercial loan options.
Explore Business Financing Options
Learn More About USDA Business & Industry Loans
Learn More About Private & Hard Money Loans
All financing is subject to lender approval, underwriting requirements, property and business eligibility, documentation, appraisal, program availability, and lender-specific conditions.