Many company owners struggle with how to get a business loan for commercial real estate, especially if it’s their first time purchasing or refinancing a commercial property. Understanding your options—which extend beyond conventional lenders—is key to making the right decision.


Introduction to Commercial Real Estate Loans

You can use a commercial real estate loan to purchase property and make improvements. 

Commercial real estate loans are a little different from a standard residential mortgage. In addition to taking your personal finances into consideration, most lenders also take a close look at your business finances, especially if you have a small business. At a minimum, banks will want to know your net operating income over a period of time to determine how much they are willing to lend. This process often takes several months, and business owners don’t always have time on their side.

Interest rates for a commercial real estate loan are often higher than a residential mortgage, but this is the cost of doing business—and interest is a tax-deductible expense. Unlike residential mortgages, which might have 15- or 30-year terms, commercial real estate loans often have shorter terms—typically in the range of 5-10 years.


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How to Get a Business Loan for Commercial Real Estate

If it’s your first time getting a loan for commercial real estate investing, or if you are trying to purchase an unoccupied space that needs improvements, you should take the time to explore the various lending pathways available to you.


Conventional Loan

If you have a relationship with a local banker, this is a good place to start. You’ve already built trust and the application process may be more streamlined. However, even with good credit and a strong track record with the bank, you may not be able to get the funding you need because of the restrictions on conventional banks. Conventional banks are also known to tighten their credit requirements based on economic fluctuations.

For example, you may be required to occupy a certain percentage of the space in order to qualify for a commercial real estate loan from a conventional lender. If renovations are required, expect to provide substantial documentation, including builder estimates. If your business is in good shape but your personal finances are not in order, this could also impact your ability to secure a loan.


SBA 504 Loan

The Small Business Administration has developed a loan program for real estate. When you get an SBA 504 loan, half of the money comes from a bank, 10 percent comes from you, and the remainder comes from a certified development company. You get the benefits of low interest rates, a low down payment, and longer payment terms than most other options. However, the application process is rigorous and slow. You must also meet the size standards of a small business.


Hard Money Loan

Hard money lenders are able to be more flexible than conventional lenders, including when it comes to financing unoccupied buildings and properties that need improvement. The loan is backed by equity, so your personal finances are less of a concern; even if you have a low credit score or have had a foreclosure, you can often still get a hard money loan.

Hard money lenders can also be more flexible in terms of property use. If you’re planning to share the space or generate some rental income, it may be easier to get financing from a hard money lender.

If time is of the essence, a hard money lender is definitely the way to go. They can close significantly faster than conventional banks. However, it’s important to know that hard money loans typically come with higher down payments—in the range of 40 percent—so you need some capital for this pathway to be a viable option.


Finance Commercial Real Estate with Socotra Capital

If you’re struggling with how to get a business loan for commercial real estate, Socotra Capital can help. We can help you access your money when you need it. With our fast approval and closing process, you gain a competitive advantage over other investors and business owners. 

If you’re considering investing in commercial real estate to generate rental income, read How to Grow a Passive Income Portfolio in Today’s Market to learn more about this strategy and other potential opportunities for investment.


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