Commercial Real Estate Loans: Rates, Types, and How to Qualify in 2027

By American Business Center | Updated January 2027 | Business Loans

Commercial real estate loans are fundamentally different from residential mortgages. The underwriting, the terms, the down payment requirements, and the qualifying criteria all operate on different rules. This guide explains every major commercial real estate loan type, current rates, and how lenders decide who qualifies.

Types of commercial real estate loans

Loan Type	Best For	Rate Range (2027)	LTV	Term
SBA 504	Owner-occupied businesses	6%–8% (fixed on CDC portion)	Up to 90%	10–25 years
SBA 7(a)	Smaller RE purchases ($1M–$5M)	10%–14% (variable)	80%–85%	Up to 25 years
Conventional commercial mortgage	Established businesses, investment RE	7%–10%	65%–80%	5–20 years
Bridge loan	Short-term, transitional situations	9%–15%	65%–75%	6–36 months
Hard money loan	Fix-and-flip, distressed properties	10%–18%	60%–70%	6–24 months
CMBS loan	Larger properties ($2M+)	6.5%–9%	65%–75%	5–10 years (balloon)

SBA 504 loans: the best option for most owner-occupied businesses

If you are a business owner buying the building your business operates from, the SBA 504 loan is almost always the right choice. The structure — 50% conventional first mortgage, 40% CDC/SBA second mortgage, 10% borrower equity — provides 90% financing at terms no conventional lender can match.

The CDC portion carries a fixed rate locked for 10, 20, or 25 years. In 2027, 25-year CDC fixed rates are approximately 6.5%–7.5%, depending on when you close. This is the most predictable commercial financing available.

Eligibility requirement: the business must occupy at least 51% of the purchased property (60% for new construction). The property cannot be purely investment real estate.

Conventional commercial mortgages: for investment properties and larger businesses

Conventional commercial mortgages from banks and commercial lenders work for both owner-occupied and investment properties. They are faster than SBA loans (typically 4–8 weeks vs 60–90 days for SBA) and involve less paperwork, but require larger down payments (20%–35% typically) and have shorter amortization periods.

Most conventional commercial mortgages have balloon payments: the loan amortizes over 20–25 years, but the full balance is due after 5, 7, or 10 years, requiring refinancing. This is different from residential mortgages with true 30-year fixed terms.

Key underwriting metrics for commercial real estate loans

Debt Service Coverage Ratio (DSCR)

DSCR = Net Operating Income (NOI) / Annual Debt Service. Most lenders require a minimum DSCR of 1.25, meaning the property generates 25% more income than needed to cover the loan payments. A property with $100,000 NOI can support maximum annual debt service of $80,000.

Loan-to-Value (LTV)

The loan amount as a percentage of the appraised property value. SBA 504 loans can reach 90% LTV. Conventional loans typically max out at 75%–80%. Higher LTV means more leverage but also higher rates and stricter qualification.

Debt Yield

Debt Yield = NOI / Loan Amount. Many institutional lenders require a minimum debt yield of 8%–10%. A property with $100,000 NOI would support a maximum loan of $1,000,000–$1,250,000 at an 8%–10% debt yield requirement, regardless of the appraised value.

Down payment requirements

Loan Type	Minimum Down Payment	Notes
SBA 504	10%	15% for special-purpose properties; 20% for startups
SBA 7(a)	10%–20%	Lender discretion; often 10% for strong borrowers
Conventional	20%–35%	Investment properties often require 25%–35%
Bridge loan	25%–40%	High-leverage bridge loans exist but are expensive

Qualification requirements

Personal credit score: 680+ for SBA and conventional; 620+ for some lenders; 580+ for hard money
Time in business: 2+ years for most lenders; some allow 1 year for strong borrowers
Business cash flow: Must demonstrate sufficient DSCR after the new debt service
Personal financial statement: Required for all owners with 20%+ ownership
Property appraisal: Third-party MAI appraisal required for all commercial loans
Environmental assessment: Phase I environmental site assessment often required

Bottom line

For owner-occupied properties, the SBA 504 is the best-value commercial real estate loan available to small businesses: lowest down payment, longest fixed terms, and competitive rates. Apply through an SBA-approved CDC in your region. For investment properties, conventional commercial mortgages from regional and community banks are typically the most accessible option.