Commercial Real Estate Loan Guide
NOI, DSCR, LTV, cap rates, balloon payments, and all major CRE loan types — from conventional bank loans to CMBS and SBA financing. Everything you need to evaluate and finance commercial real estate in 2026.
Commercial Real Estate Loan Basics
A commercial real estate loan finances property that is income-producing or used for business purposes — apartments with 5+ units, office buildings, retail centers, industrial warehouses, self-storage facilities, hotels, and mixed-use developments. Unlike residential loans (1–4 units), CRE loans are underwritten on the property’s income performance and the borrower’s business track record, not just personal credit.
The fundamental difference from residential lending: CRE lenders primarily evaluate whether the property generates enough income to service the debt — and secondarily whether the borrower has the creditworthiness and experience to manage the asset.
| CRE Property Type | Examples | Typical Financing |
|---|---|---|
| Multifamily (5+ units) | Apartment complexes, large condos | Agency (Fannie/Freddie), bank, CMBS, bridge |
| Office | Professional office buildings, medical office | Bank, CMBS, SBA, insurance company loans |
| Retail | Strip centers, shopping centers, single-tenant net lease | Bank, CMBS, SBA (owner-occupied), insurance loans |
| Industrial | Warehouses, flex space, manufacturing | Bank, SBA, CMBS, industrial REITs |
| Self-storage | Climate-controlled and standard storage facilities | Bank, CMBS, SBA, private equity |
| Hospitality | Hotels, motels, resorts | Bank, CMBS, SBA, brand-specific financing |
| Mixed-use | Retail + residential combined | Bank, CMBS, local portfolio lenders |
Key CRE Metrics: NOI, DSCR, Cap Rate, LTV
Commercial real estate lending uses a specific vocabulary of financial metrics. Understanding these is essential to evaluating deals and communicating with lenders.
Net Operating Income (NOI)
NOI = Gross Rental Income − Operating Expenses (but excluding debt service)
Operating expenses include property taxes, insurance, utilities, maintenance, management fees, and vacancy allowance. NOI does NOT include mortgage payments — it’s the property’s income before financing costs. NOI is the foundation of all other CRE valuation metrics.
Debt Service Coverage Ratio (DSCR)
DSCR = NOI ÷ Annual Debt Service
Annual debt service = 12 months of principal + interest payments. Most CRE lenders require a minimum DSCR of 1.20–1.25, meaning NOI covers debt payments with a 20–25% cushion. Lenders won’t approve a loan that puts the property in a negative-cash-flow position at stabilization.
Capitalization Rate (Cap Rate)
Cap Rate = NOI ÷ Property Value
The cap rate represents the unlevered return on a property if purchased in cash. A property with $120,000 NOI selling for $1,500,000 has an 8% cap rate. In mid-2026, cap rates vary significantly by market and asset class: multifamily 5.0–6.5%, industrial 5.5–7.0%, retail 6.5–8.5%, office 7.0–9.5% (higher due to post-pandemic headwinds).
| Metric | Formula | CRE Lender Benchmark (2026) |
|---|---|---|
| NOI | Gross Income − Operating Expenses | Must support debt service at 1.20–1.25 DSCR |
| DSCR | NOI ÷ Annual Debt Service | Min 1.20 (most lenders); 1.25 for best terms |
| LTV (Loan-to-Value) | Loan Amount ÷ Appraised Value | Max 65%–75%; 70% most common |
| LTC (Loan-to-Cost) | Loan Amount ÷ Total Project Cost | Max 75%–85% (construction/bridge) |
| Cap Rate | NOI ÷ Purchase Price | Lenders prefer 5.5%+ to ensure viable DSCR |
| Debt Yield | NOI ÷ Loan Amount | Min 7%–9% (CMBS); 6%–8% (agency multifamily) |
Calculate NOI, DSCR, payment, and deal viability for your commercial property purchase or refinance.
Types of Commercial Real Estate Loans
CRE borrowers have access to multiple financing channels, each with different rate structures, terms, and requirements:
| Loan Type | Best For | Typical Terms |
|---|---|---|
| Conventional bank / portfolio loan | Established borrowers; local relationships; smaller deals | 5–25 year amortization; 3–10 year balloon; recourse |
| Agency multifamily (Fannie/Freddie) | 5+ unit apartment buildings; long-term holds | 5–30 year fixed; 30-year amortization; non-recourse at scale |
| SBA 504 | Owner-occupied CRE (business occupies 51%+) | 10 or 20-year fixed; no balloon; low down payment |
| SBA 7(a) | Owner-occupied CRE; smaller loans; business acquisitions | Up to 25 years; variable rate; fully amortizing |
| CMBS / conduit loan | Larger stabilized properties ($2M+); non-recourse | 10-year fixed; 25–30 year amortization; yield maintenance/defeasance prepay |
| Bridge / transitional loan | Value-add acquisitions; properties in lease-up or renovation | 1–3 year term; interest-only; floating rate (SOFR + spread) |
| Construction loan | Ground-up development | 12–36 months; interest-only during construction; converts to perm |
| Insurance company loan | Class A stabilized assets; long-term institutional hold | 10–25 year fixed; lowest rates; very strict asset quality requirements |
Recourse vs. Non-Recourse
A key distinction in CRE lending: recourse loans allow the lender to pursue the borrower personally if the property can’t cover the debt. Non-recourse loans limit the lender’s remedy to the property itself — your personal assets are protected (with some exceptions called “bad boy carve-outs”). CMBS loans, agency multifamily loans, and insurance company loans are typically non-recourse. Bank and SBA loans are typically recourse.
CRE Loan Requirements
Commercial real estate underwriting is more complex than residential. Lenders evaluate both the property and the borrower’s business track record:
| Requirement | Typical Standard | Notes |
|---|---|---|
| Minimum DSCR | 1.20–1.25 | Calculated on stabilized NOI; some lenders require 1.30 for office |
| Maximum LTV | 65%–75% | 70% most common; 65% for higher-risk asset classes (office, hospitality) |
| Minimum down payment | 25%–35% | 25–30% for multifamily and industrial; 30–35% for office and retail |
| Minimum credit score | 660–700 | 680+ preferred; some lenders require 700+ for full-doc approval |
| Net worth requirement | Equal to loan amount | Many lenders require borrower net worth ≥ loan amount |
| Liquidity requirement | 10%–20% of loan amount | Post-close liquidity; shows ability to manage cash flow disruptions |
| Experience requirement | Preferred, not always required | Managing similar asset class; commercial lenders weight experience heavily |
| Occupancy at close | 85%–90%+ for permanent financing | Stabilized occupancy required; bridge loans bridge to stabilization |
| Personal guaranty | Required for recourse loans | Non-recourse available for larger stabilized assets via CMBS/agency |
SBA 504 and SBA 7(a) Loans
Small Business Administration loans offer significant advantages for owner-occupied commercial real estate — the business using the property must occupy at least 51% of the space. SBA loans are partially guaranteed by the government, which allows lenders to offer lower down payments and longer amortization periods than conventional CRE loans.
| Feature | SBA 504 | SBA 7(a) |
|---|---|---|
| Max loan amount | $5M ($5.5M for manufacturing) | $5M |
| Minimum down payment | 10% (borrower); 40% bank; 50% SBA CDC | 10–20% (varies by lender) |
| Interest rate | Fixed for SBA portion (below market); variable for bank portion | Variable (Prime + spread, currently ~9.5–11%) |
| Loan term | 10 or 20 years; fully amortizing | Up to 25 years for real estate |
| Balloon payment | None | None — fully amortizing |
| Occupancy requirement | 51% owner-occupied | 51% owner-occupied |
| Best use case | Large CRE purchases; long-term real estate holds | Smaller acquisitions; working capital + real estate combined |
CMBS and Conduit Loans
CMBS (Commercial Mortgage-Backed Securities) loans — also called conduit loans — are originated by lenders who then pool them into securities sold to institutional investors. They typically offer lower fixed rates than bank loans for larger commercial properties, with the trade-off of strict prepayment restrictions and limited flexibility.
CMBS Key Features
- Loan size: Minimum $2M–$3M (most CMBS lenders); sweet spot $5M–$50M
- Non-recourse: Yes — lender’s remedy limited to the property (with bad-boy carve-outs for fraud, bankruptcy filing, etc.)
- Rate: Fixed for 10 years, based on 10-year Treasury + spread (typically 170–250 bps above Treasury)
- Amortization: 25–30 years with 10-year balloon payment
- Prepayment restriction: Yield maintenance or defeasance — extremely expensive to exit early; plan for full 10-year hold or assume CMBS when selling
- Servicing: Loans are transferred to a servicer; modifications are difficult during the term
Agency Multifamily (Fannie Mae / Freddie Mac)
For 5+ unit apartment buildings, Fannie Mae (DUS program) and Freddie Mac (Optigo program) offer long-term fixed-rate financing with competitive rates, typically 5–30 year terms, and non-recourse options for qualified borrowers. Loan minimums start at $1M. These agency programs are the gold standard for stabilized multifamily — lower rates than bank loans with more flexible prepayment than CMBS.
How to Apply for a Commercial Loan
CRE loan applications require significantly more documentation than residential. Here’s the standard process and timeline:
| Step | What Happens | Timeline |
|---|---|---|
| 1. Initial submission | Submit property details, rent roll, operating statements, purchase contract, and borrower financial summary | Day 1 |
| 2. Indicative term sheet | Lender reviews and issues non-binding term sheet with proposed rate, LTV, DSCR, and structure | Day 3–7 |
| 3. Application and deposit | Execute term sheet; pay good-faith deposit (covers appraisal, environmental, lender costs) | Day 7–10 |
| 4. Third-party reports ordered | Commercial appraisal (MAI), Phase I environmental, property condition report, survey | Day 10–30 |
| 5. Full underwriting | Lender analyzes financials, rent roll, lease abstracts, borrower financial statements, tax returns, entity docs | Day 20–45 |
| 6. Credit committee | Deal presented to lender’s credit committee for final approval | Day 35–55 |
| 7. Commitment letter | Binding commitment issued; final conditions listed | Day 45–60 |
| 8. Closing | Docs signed; funds wire; typically at an attorney’s office rather than title company | Day 60–90 |
Key Documents Required for CRE Loans
Prepare: 2–3 years of property operating statements, current rent roll (all tenants, lease terms, rents, expirations), lease abstracts for major tenants, 2–3 years personal and business tax returns, personal financial statement (assets/liabilities), entity organizational documents, purchase contract, and summary of borrower’s CRE experience and current portfolio. For construction loans: add full plans, specs, and contractor bid packages.
Our commercial lending specialists evaluate deal structure, NOI, DSCR, and the right loan program for your CRE acquisition or refinance.
