Commercial Real Estate Loan Rates

Commercial real estate financing comes in many sizes, and interest rates are the lowest they’ve been in years. Business.org breaks down the lender numbers.

Commercial real estate loans are loans used to purchase or renovate property. You can use them to purchase new real estate for your business, remodel or expand your current digs, or even construct a 100-foot neon Belgian waffle to attract diner customers from outer space (no judgment: aliens like breakfast too). And now is the prime time to take out a commercial real estate loan—interest rates are at historic lows (currently averaging between 4% and 6%).

But before you fill out that application, let’s take a look at the different types of loans and what you can expect from each.

Commercial loan rate overview

Commercial loan rates

Loan
Average rates
Average LTV ratio
Typical minimum loan amount
Typical maximum term
Get a loan

SBA 7(a) Loan

5.25%–9.25%

80%–90%

$350,000

25 years

CDC/SBA 504 Loan

4.38%–4.49%

80%–90%

$1 million

20 years

USDA Business & Industry Loan

5.25%–9.25%

75%–80%

$200,000

30 years

Traditional bank loan

4.2%–8%

70%–80%

$1 million

30 years

Construction loan

5.5%–6.5%

60%–80%

$1 million

2 years

Conduit (CMBS) loan

4.3%–5%

70%–75%

$2 million

10 years

FHA Hospital/ Senior Care Loan

3.8%–4.7%

75%–83%

$3-5 million

30 years

Fannie Mae apartment loan

3.01%–5.06%

70%–80%

$750,000

30 years

Freddie Mac apartment loan

3.59%–4.27%

70%–80%

$1 million

10 years

Bridge loan

9%–13%

80%–90%

$1 million

1 year

Soft money loan

6.5%–17.5%

60%–65%

$150,000

8 years

Hard money loan

10%–20%

50%–55%

$150,000

2 years

Data effective 11/01/18. At publishing time, pricing and terms are current but are subject to change. Offers may not be available in all areas.

Commercial loan interest rates by building type

Building type
Average rates
Average LTV ratio
Average terms
Average amortization period
Get a loan

Apartment complex

3%–8.5%

70%–75%

20 years

26 years

Office building

3.2%–8.5%

70%–75%

8 years

30 years

Retail building

3%–9.9%

65%–75%

6 years

25 years

Restaurant

3.7%–13.3%

60%–70%

7 years

22 years

Industrial building

3%–8.5%

65%–75%

11 years

25 years

Hotel/motel

3.4%–13.8%

65%–70%

8 years

23 years

Healthcare/ senior housing

3.4%–9.9%

65%–75%

14 years

25 years

RV/mobile home

3.2%–11.1%

65%–75%

9 years

26 years

Self-storage facility

3.3%–8.5%

65%–75%

6 years

28 years

Special purpose building

3.8%–14%

60%–70%

8 years

23 years

Data effective 11/01/18. At publishing time, pricing and terms are current but are subject to change. Offers may not be available in all areas.

Determine your commercial mortgage payments

Not sure how much money you’d be paying out every month on a commercial real estate loan? Forecast your payments quickly and easily with this commercial mortgage calculator.

Grow your business today

Browse hundreds of loan options, custom-tailored to your business and budget needs, from a single, simple platform.

How commercial loan rates work

Commercial real estate loans aren’t the same as residential home mortgages, and they come with higher interest—usually 0.5% to 1% above the 30-year prime residential rate. Commercial loans also have shorter repayment terms, between 5 and 25 years, and are considered a higher risk for lenders because business real estate is typically harder to resell upon default than residential property.

An interest rate—what a lender charges you for the service of loaning capital—is determined by three factors: a base rate, which can be the US Prime Rate (5.25% as of November 2018) or the international LIBOR (London Interbank Offered Rate, measured monthly and measured at 2.28% as of November 2018); the length of the loan’s repayment term; and the overall amount of the loan. Interest on loans can be set at variable rates (meaning the percentage will fluctuate as the base rate does) or fixed rates (meaning the percentage remains consistent throughout the loan’s repayment term).

The worth of income-producing properties is measured by the loan-to-value (LTV) ratio, which is the total amount of the loan divided by the appraised property value or purchase price. The LTV for an $80,000 loan on a $100,000 property would be 80% ($80,000 ÷ $100,000 = 0.8 or 80%), for example.

What is a prepayment penalty?

Commercial loans come with a built-in expectation that interest will be paid over a set amount of time, ensuring that the lender will receive a continuous stream of revenue for the duration of the loan’s term. When a borrower decides to pay off a loan early, whether to refinance at a lower interest rate or get out early in anticipation of a higher rate in the future, they can—and most likely will—face prepayment penalties.

The borrower would then pay the difference between the loan’s original interest rate and the current rate for the remainder of the term of the loan (called yield maintenance) or offer up another mode of collateral, such as treasury bonds (referred to as defeasance). If your business is doing well and you can afford it in the short term, you’re in a slightly better position to take the hit of a prepayment penalty. A cash-strapped business, on the other hand, should probably avoid deviating from the loan’s term.

How to keep your interest rates low

The simplest way to guarantee that you’ll get low interest rates is to maintain a high personal FICO credit score, the upper 700s being the ideal. Putting in a larger down payment will also help keep interest rates manageable, as will opting for longer repayment schedules when you can. Thinking long term, working with the same lender over multiple deals can establish a relationship and confidence that will lead to more lenient commercial mortgage rates in the future.

Commercial loan pros and cons

There are over a dozen types of commercial real estate loans, ranging from general to niche functionality. Here are three of the most commonly used commercial mortgage loans.

Traditional bank loans

Nearly 75% of commercial mortgage loans are procured through traditional banks and credit unions, and they typically require a personal FICO credit score of at least 700. Most standard-lender loans come with terms of 5 to 10 years, and some also require at least one year in business and 51% owner-occupancy of the commercial property.

Strengths
Pro Bullet Wide availability
Pro Bullet Competitive rates
Weaknesses
Con Bullet High credit score requirements
Con Bullet Prepayment penalties

SBA loans

SBA loans are backed by the U.S. Small Business Administration and awarded through SBA-approved lenders. The SBA doesn’t make loans directly, and you have to be turned down by traditional commercial real estate financing before applying. These loans have long terms and low interest rates but come with stiff requirements.

Strengths
Pro Bullet Low interest rates
Pro Bullet Long repayment terms
Weaknesses
Con Bullet Extensive paperwork
Con Bullet Lengthy waiting process

Hard money loans

Hard money payouts are fast, short-term loans given by private investors who take the risk based on the value of the commercial property, not the borrower’s credit rating. They’re good for “fix and flip” investments but also come with high interest rates (up to 18%) and extra up-front fees.

Strengths
Pro Bullet Fast cash turnaround
Pro Bullet Minimal credit qualifications
Weaknesses
Con Bullet High interest rates
Con Bullet Additional fees

The takeaway

When it comes to a commercial real estate loan, don't be afraid to take your time and shop around--for both loans and investment properties. The climate for commercial mortgage rates is the best it's been in years, and there are plenty of lenders who are ready to make a deal. Whether you’re buying, refinancing, expanding, or upgrading (we’re absolutely going to consider the neon waffle an “upgrade,” but that’s just us), it’s currently a borrower’s market.

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Bill Frost
Written by
Bill Frost
Bill Frost has been a writer, editor, journalist, and occasional graphic designer since the grunge-tastic ’90s. His pulse-pounding prose has been featured in Salt Lake City Weekly, Coachella Valley Independent, Wausau City Pages, Des Moines CityView, Tucson Weekly, Las Vegas Weekly, Inlander, OC Weekly, and elsewhere; he’s currently a senior columnist at SLUGMag.com. When not cranking out quips, Bill actualizes beer money as a musician and podcaster. You can reach him at bill@business.org.
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