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If you are interested in a small business loan to purchase commercial real estate, you have several options. In this blog, we’re going to explore the different types of real estate loans for you to consider.

What is a Commercial Real Estate Loan?

A commercial real estate loan is designed to assist borrowers with purchasing a new commercial property, refinancing real estate debt on a property they currently own or renovating income-producing properties.

A commercial real estate loan is similar to a residential mortgage loan, with a few key differences that small business owners should understand.

Loan-to-Value Ratio

Loan-to-Value, or LTV, is a metric used by lenders to determine how much they can loan a borrower. It is determined by dividing the amount of the loan by the value of the property.

A homebuyer can qualify for a conventional mortgage with an LTV of 97%. If the buyer qualifies for a first-time buyer program or uses a government-backed loan, they may be able to obtain 100% financing.

On the other hand, for a commercial real estate loan, lenders want an LTV of 75% to 80%. Therefore, you need to have a 20% to 25% down payment or purchase a property that is undervalued.

Personal Guarantee vs. Non-Recourse

For both residential and commercial real estate loans, the property is used as collateral- but many times, you also have to provide a personal guarantee. Depending on the age of your business, you may not have the track record the lender requires to qualify for a commercial real estate loan. In this case, the lender will request that the principals or the owners guarantee the loan. This means if the business can’t pay the loan, the principals or owner will.

In some cases, the lender may not require a personal guarantee and will simply use the property as collateral- and will take possession of and sell the property if the borrower defaults. This is sometimes referred to as a non-recourse loan because the lender is unable to go after the owners or principals if the property doesn’t cover the amount owed.

6 Types of Commercial Real Estate Loans

Depending on the needs and qualifications of your business, there are 6 types of commercial loans that you can as real estate loans. We will explore each of these below.

You will find a variety of lenders for each type of loan from credit unions to lenders who specialize in commercial real estate loans to commercial banks.

Permanent Loan

A permanent loan is similar to a traditional mortgage, it is the first loan on a commercial property. A permanent loan is typically available from any commercial lender but is not meant for short-term financing. They typically have a repayment term of 5 years or more.

SBA Loan

The U.S. Small Business Administration guarantees some commercial real estate loans, known as SBA Real Estate Loans. Two SBA loan programs allow you to get financing for commercial real estate:

• SBA 7(a) Loans 

• SBA 504 Loans  

These loans cannot be used by real estate investors.

Bridge Loan

A bridge loan is a short-term commercial real estate loan, with repayment terms ranging from 6 months to 3 years. This option is typically used by borrowers who are waiting to apply for long-term financing or to refinance a loan. They may also be used by investors who are planning to fix/flip a property for profit.

Line of Credit

If you know anything about credit cards, you know how a line of credit works. Instead of getting all of the money at once, you have access to it, with a cap. You can withdraw what you need from it and when you pay it back, you have access to the full line. It’s a good option if you are working on remodeling a property and need some cash right now and will need more later.

Hard Money Loans

Hard money loans are a type of bridge loan used by real estate investors. These are issued by private companies and individuals, not traditional lenders. This is a form of short-term financing, with the terms lasting between 3 to 36 months, since most investors don’t hold on to the property for very long.

Owner Financing

This type of financing allows buyers to purchase a home, paying the seller directly instead of getting a loan. This is often used by real estate investors. This helps the buyer avoid the strict eligibility requirements that come with real estate loans.  

For example, if your credit scores are low, you are self-employed or have difficulty verifying income, this may be a good alternative. For the owner of the property, the benefit is getting a steady income with interest, until the property is paid in full.


If you are interested in purchasing commercial real estate, consider these 6 types of commercial real estate loans. Consider your needs and goals to decide which one is right for you. If you need more help, contact Ideal Financial Group for some guidance.