To get a commercial real estate loan, define exactly what you need and why, size the request against the tests lenders use, match it to the type of lender whose criteria fit, prepare a clean package, and compare term sheets on more than rate. Commercial lenders underwrite the property's income and value first and the borrower second, so the work that wins approval happens before the first lender call.
How commercial real estate loans work
A commercial real estate loan is secured by income-producing or business-purpose property: apartments with 5 or more units, industrial, retail, office, hospitality, self-storage, senior housing, land, and specialized assets. The lender's main source of repayment is the property's net operating income, and the main protection is the property's value.
That makes commercial lending different from a home mortgage in 4 ways. The property's cash flow drives the loan amount. The loan term is usually shorter than the amortization, so a balloon balance comes due at maturity. Terms vary widely between lenders, with no single national standard. And the borrower is typically an entity, such as an LLC, with guarantors when the lender requires recourse.
Step 1: Define the request
Start with a precise request, because lenders sort deals quickly and an unclear request is the fastest way to a pass.
- Loan purpose. Acquisition, refinance, cash-out refinance, construction, bridge, or recapitalization.
- Loan amount. The amount you need and the amount you would accept.
- The property. Type, location, size, occupancy, condition, and current income.
- The business plan. Hold as is, renovate, lease up, develop, or sell.
- Timing. Your closing deadline and any contract dates that drive it.
- The sponsor. Experience with similar property, liquidity, and net worth.
Step 2: Size the loan the way lenders do
Lenders apply several tests at once and lend the smallest result. The common ones are loan-to-value, debt service coverage ratio, debt yield, and loan-to-cost for construction. The test that produces the smallest loan limits proceeds, no matter how strong the others look.
Run your numbers through the loan sizing calculator before you ask for a specific amount. If the request is above what the property supports, you will learn it in minutes instead of weeks, and you can adjust the structure, add equity, or plan for subordinate capital such as mezzanine debt or preferred equity.
The DSCR calculator and commercial mortgage calculator show how rate and amortization change coverage and payments.
Step 3: Choose the right type of lender
The best lender for a deal depends on the property, the business plan, the loan size, and how much certainty and flexibility the borrower needs.
| Lender type | Usually fits |
|---|---|
| Banks and credit unions | Relationship borrowers, stabilized and owner-user property, construction for experienced sponsors |
| Life insurance companies | Lower-leverage loans on high-quality stabilized property |
| Agency lenders | Multifamily and some senior and student housing |
| CMBS lenders | Stabilized property where non-recourse, fixed-rate debt matters more than flexibility |
| Debt funds | Transitional business plans, higher leverage, and speed |
| Private lenders | Tight deadlines and requests outside bank policy |
| SBA lenders | Owner-occupied commercial real estate |
Each lender type has its own appetite, and that appetite moves. A bank that quoted construction aggressively last year may be off it now. This is the problem a commercial mortgage broker solves: knowing which lenders are active for a specific property type, size, and market right now.
Step 4: Prepare the loan package
A complete, consistent package shortens underwriting and signals a serious borrower. A first submission usually includes:
- A short executive summary of the request and business plan
- Rent roll and trailing 12-month operating statement
- Purchase contract, or the payoff statement on existing debt
- Pro forma and assumptions for any change in income
- Budget, schedule, and contractor information for construction or renovation
- Sponsor resume, schedule of real estate owned, and personal financial statement
- Entity documents
Numbers should reconcile across every document. Lenders notice when the rent roll, operating statement, and pro forma tell different stories.
Step 5: Compare term sheets on more than rate
A term sheet summarizes the proposed loan. The lowest rate is often not the best execution. Compare:
- Loan amount and future funding for improvements or leasing
- Rate, index, spread, and any rate floor or cap requirement
- Term, extension options, and amortization or interest-only period
- Recourse and the guaranties required
- Reserves for taxes, insurance, capital work, and tenant improvements
- Prepayment terms, such as a step-down, yield maintenance, or defeasance
- Fees, deposits, and the lender's closing conditions
- The lender's closing record and its certainty of execution
Step 6: Underwriting and closing
After a term sheet is signed and a deposit is paid, the lender orders third-party reports: an appraisal, an environmental site assessment, and often a property condition report, survey, and zoning report. The lender underwrites the sponsor, reviews title and leases, and negotiates loan documents. Timelines depend on the lender, the property, and how quickly the borrower delivers information.
The most common reasons deals stall at this stage are an appraisal below the expected value, an environmental issue, lease or estoppel problems, and missing sponsor documents. Most of those can be anticipated in Steps 1 through 4.
Working with a commercial mortgage broker
A commercial mortgage broker represents the borrower. The broker positions the request, identifies the lenders whose current criteria fit, runs a competitive process, and manages the transaction through closing. Capital Partners arranges commercial real estate debt and equity from $1M to $100M nationwide and matches every request against a private database of lender criteria tracked by property type, structure, loan size, geography, and current appetite.
If you have a deal ready, submit it for a principal's review.