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What Is A Commercial Real Estate Loan?

by Steven Brown
Commercial Loan Truerate Services

Commercial real estate loan is a type of loan used to finance property used exclusively as business or investment properties. The commercial real estate industry refers to this as a non-primary mortgage, meaning it’s not tied directly to the primary residence. Because of its general nature and sometimes complex conditions, these loans are often secured by more than one building or property.

What Is a Commercial Real Estate Loan?

Just as with home mortgages, banks and independent lenders are actively involved in making loans on commercial real estate. The two main types of commercial real estate loans are construction loans and acquisition loans.

Construction loans are made for the purpose of taking over a property and converting it into a business or retail space. This can be done either by building new structures or by renovating an existing building. The loan may also be used to finance improvements to the land under the building, such as installing utilities or parking lots.

Acquisition Loans

An acquisition loan is used to buy an existing business or property that has been put up for sale. It’s similar to a construction loan in that it finances improvements such as adding new rooms or renovating existing ones.

Loan Repayment Schedules

A residential mortgage is a type of amortized loan in which the debt is repaid in regular installments over a period of time. The amount of money repaid each month will increase or decrease depending on the number of payments made.

The following schedule shows how much you will pay each month to make mortgage payments.

Commercial Real Estate Loan Interest Rates and Fees

Interest rates on commercial loans are generally higher than on residential loans. Also, commercial real estate loans usually involve fees that add to the cost of the loan, which may increase the borrowing costs.

The interest rate is the amount charged for borrowing money in an amount that must be repaid at a fixed time in exchange for a fixed amount of money. It’s also known as the annual percentage rate (APR), or simply as “the interest rate”. The interest rate is determined by comparing what you’re paying now with what you’ll pay in the future when you take out a loan.

For example, if you borrow $10,000 at 10% APR, then every year you repay $10,000 at 10% APR and add it all up; this could be done over 30 years or just one year. If your loan is repaid in full by paying off the principal balance each month with no extra payments, then your total interest paid will be 10%.

Interest rates fluctuate based on many factors, including:


A commercial real estate loan may have restrictions on prepayment, designed to preserve the lender’s anticipated yield on a loan. This is sometimes referred to as a “rate lock,” or a “leasehold commitment.”

A rate lock is typically for a period of one year and will require you to pay your monthly debt service payments until the end of the lock period. If you need to make those payments in advance, your account will be charged an early-termination fee.


This guide will help you analyze your commercial loan options, considering both the traditional bank financing and hard-money lending. We’ll discuss their pros and cons, the process for applying for each, and what to watch out for when you’re deciding which option is best.

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