Commercial Real Estate Loan Rates 2018

With commercial real estate loan rates remaining at nearly an all-time low, now is a good time for small business owners to take advantage of this opportunity by refinancing or purchasing a new property. When it comes to choosing a lender for your commercial loan rates, you have a couple of different options. Although one of the primary differences between lenders depends on their commercial real estate interest rates, there are some other fundamental differences you’ll want to consider when picking a lender to work with.

For example, if you plan on occupying at least 51 percent of the building, have a credit score of 680 or better, and have been in business for over two years, then you may qualify for an SBA 7(a) loan with the national SBA lender Northeast Bank with a rate as low as 5.5 percent and a loan for as much as five million dollars. Here is everything you need to know about the current commercial loan rates for real estate so that you can become a more informed borrower.

What Are Commercial Real Estate Loan Rates?

Commercial loan rates for real estate usually have a lower rate than other business loans. Most of the time, you would use a commercial real estate loan to purchase or renovate an existing commercial property that you already occupy. For a building to be considered owner-occupied, it means that your business must fill at least 51 percent of the building. You can use a commercial mortgage to finance a retail center, a mixed-use building, and office buildings. There are five types of commercial real estate loans.

  1. SBA 7(a) Loan

An SBA 7(a) loan is the most common type of SBA loans. They are designed to help businesses purchase or refinance an existing owner-occupied commercial building for up to five million dollars. As of 2016, approximately 65 percent of all SBA 7(a) loans were extended to existing owner-occupied businesses with 35 percent to new companies.

  1. CDC/SBA 504 Loan

A CDC/SBA 504 loan helps new and existing businesses make a purchase or refinance an existing owner-occupied commercial building. They are backed by the United States Small Business Association and technically considered two different loans. The good news is that there is no maximum amount you can borrow.

  1. Traditional Commercial Mortgage

A traditional commercial mortgage is considered a standard loan that you would get from a lending institution or bank. The federal government does not back it. They are usually used to buy or refinance commercial properties such as retail centers, owner-occupied office buildings, industrial warehouses, and shopping centers.

  1. Commercial Bridge Loan

A commercial bridge loan is issued by lenders and banks to help borrows who want to make a short-term all-cash purchase, such as an owner-occupied commercial building. You can also use it to refinance a long-term mortgage later.

  1. Commercial Hard Money Loan

A commercial hard money loan is a good option for someone who needs cash fast to purchase an owner-occupied building or to refinance a long-term mortgage. They tend to close fast and offer interest only payment options.

Usually, four different factors affect commercial real estate loans:

  1. Prevailing marketing rates

Just like residential mortgage rates, commercial real estate loan rates can go up or down depending on the economy.

  1. Terms and size of the loan

Larger, long-term loans tend to have higher rates while smaller, short-term loans have lower ones. The only exception to this rule is with hard money loans because they personally work with borrowers by charging higher rates for short-term financing

  1. Type of commercial loan

Your rates may differ depending on which loan you pick. For example, hard money loans tend to have high rates while SBA loans are the least expensive.

  1. Your credit

If you or your business have a high credit score, your rates will probably be higher. On the other hand, a good credit score can help you achieve the lowest prices possible for your loan.

Lots of lenders offer both a fixed and variable rate for their loans. With fixed rates, you can be sure that the interest rate won’t change during the length of the loan. Your monthly payments will also be the same. However, many borrowers don’t qualify for a fixed rate, so these tend to be hard to get. Variable interest rates and payments are subject to change throughout the loan term. For example, your rate or monthly payments will increase or decrease depending on existing market rates. Rates usually reset every five years, but they can change as quickly as one year. These numbers are based on the prime rate, which is the common denominator of all market rates. Currently, the prime rate is 4.50 and banks tend to have a rate that equals as much as 7.5 percent for their commercial loans.

Do Rates Change Over Time?

Most commercial loan rates won’t change too much from year to year, but it’s hard to determine the payments over a ten or 20-year loan. This is because lenders usually decide the interest rates over the course of a few years when you apply for a loan and they work by charging the prime rate. Prime rates have gone up and down over the past few decades, but they have been at an all-time low since 2008. Keep in mind that these rates are always subject to change over the years.

How Are Commercial Interest Rates Structured?

Commercial interest rates are structured in three ways: fully amortizing loans, interest rate resets, and balloon rates. Fully amortizing loans require you to pay off your interest and entire principal on the loan during the loan term. For example, an SBA 504 loan is a fully amortizing loan over 20 years, so you will need to make monthly payments on your principal and interest until the loan is entirely paid off.

Banks commonly issue balloon loans. The only exception is SBA loans, which are not allowed to have balloon payments. Balloon loans will enable you to start making low monthly payments, and then the fees gradually increase over time. The amortization period is usually longer than the term of the loan, meaning that you’ll likely have to pay off a balance when your term ends. Most people in this situation either pay their balances in full or they refinance the loan so that they can keep making payments each month.

For example, if your bank allows you to borrow $500,000 with a five percent interest rate over ten years with a 30-year amortization rate, your monthly payments would be around $3,300. By the time you reach your tenth year, you would own a balloon payment of $314,407. That’s a lot of money that most people can’t afford to pay off in full, so they choose to refinance this rate for a new monthly payment loan.

Finally, interest rate resets tend to have a variable rate. The loan starts by allowing the borrowing a fixed interest rate for a certain amount of time, such as up to five years. After their time is up, the interest rate either goes up or down based on the prime rate. The borrower is then responsible for paying on this new interest rate until his or her next reset date or until the loan is paid off. Although there is no certainty when it comes to what your payments will be in a few years, people who choose to use interest rate resets can save a lot of money when they buy instead of leasing their commercial properly. It’s also a good way to grow your business assets and take advantage of tax benefits.

Importance of Loan Type on Your Interest Rates

The type of loan you choose has the most significant impact on your rates. This is because different lenders work with different kind of properties and sets of borrowers, therefore; they set different terms for their loans. Here’s a look at what to expect with each loan type.

  1. Commercial Real Estate SBA Loans

This category includes 504 loans and 7(a) loans. The maximum rates for 504 loans are 4.71 to 4.93 percent while 7(a) loans are 6.75 to 9.5 percent. This makes SBA loans the least expensive loan to use for commercial real estate. Additionally, a portion of the loan repayment is guaranteed by the Small Business Administration (SBA), which works out well for the borrower. It also lowers the loan risk for the lender, making SBA loans an attractive option for both sides.

The SBA 7(a) loan is usually a better option for commercial real estate because it’s easier to get. It’s also the most popular SBA loan program, especially among those who need to borrow a smaller amount. However, the rates tend to be higher and based on the prime rate. Currently, they are starting at a variable 6.75 percent. On the other hand, 504 loans are better suited for loans over one million dollars. They are divided into three parts. Half of the loan is from the bank, 40 percent is from a certified development company, and the remaining 10 percent is from your down payment.

  1. Conventional Banks Loans

Most people who borrow money do so from a bank. In fact, approximately 70 percent or more of commercial loans are made by them. However, banks will usually only work with you if you have a high credit score and need to fund a middle to larger size project. Any project lower than $250,000 may be subject to higher rates. Conventional bank loans are not as low as SBO loans. They average anywhere from five to seven percent with a rate reset date of one to five years. Most banks extend variable rate loans. To qualify, you need to have good credit of 680 or above. The property that you need the loan for does not have to be owner-occupied, but it helps. Many banks will extend a five to ten-year loan but require a 20 percent down payment. They also charge you two to three percent if you pay off the loan early.

  1. Hard Money Loans

Hard money loans come from a non-bank lender. They have the highest rates, which range from 10 to 18 percent. This is because hard money lenders are based on collateral or property value and not your credit. This means that the lender does not verify your income and they lend money to you strictly on how much your property is worth. They also tend to have higher fees. Hard money loans are good for short-term loans, such as six months to two years. They give you quick money that can be refinanced into an SBA loan or another longer-term loan.

Commercial Loan Rate Summary for March 2018

The following is a summary of commercial loan rates as of March 2018:

  • SBA 7(2) loan: average rate of 5.5 to 6.75 percent, the average size of the loan is $350,000+, average loan to value is 85-90 percent, loan terms are usually 25 years, and they are moderately easy to qualify for
  • SBA 504 loan: average rate of 3.5 to 6 percent, average loan size is one million dollars or more, average loan to value is 85-90 percent, loan terms are usually 20 years, and these loans are difficult to qualify for
  • Conventional bank loan: average rate is 5 to 7 percent, average loan size is $250,000+, average loan to value is 75-80 percent, loan terms are usually five to ten years with a balloon payment, and these loans are difficult to qualify for
  • Online marketplace loans: average rate is 8 to 12 percent for a fixed or variable rate, average loan size is $25,000+, average loan to value is up to 80 percent, loan terms are usually six months to five years, and these loans are moderately easy to qualify for
  • Hard money loans: average rates are 10 to 18 percent for a fixed or variable rate, the average size of the loan is $50,000+, average loan to value is 50-55 percent, loan terms are usually six months to three years, and these loans are moderately easy to qualify for


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  • Jan

    Have you ever heard of a funder for a commercial bridge loan ($30 Mill) obtaining re-insurance against that loan?? I need some details on this- I have a property that $5Mill of the $30 will be a buy-out and deed handed over- they are saying need 60 days- does this sound Kosher? Thanks