The main types of commercial real estate loans are permanent mortgages, construction loans, bridge loans, hard money loans, CMBS (conduit) loans, agency loans, mezzanine financing, and SBA 7(a) and 504 loans. Which one fits your deal depends on the property type, whether it's stabilized or transitional, how much leverage you need, and how fast you have to close.
When it comes to securing funding for commercial real estate, there are many different commercial property loan options available, depending on your specific needs. This guide walks through each type — what it is, typical terms, and when it's the right tool.
What Is a Commercial Real Estate Loan?
A commercial real estate loan is a mortgage used to finance commercial property — retail spaces, offices, industrial buildings, multifamily properties and hotels. Borrowers take out commercial real estate loans to purchase property, fund construction or renovation, or refinance existing real estate debt.
At the highest level, there are three sources of commercial real estate lending: institutional (banks, credit unions, life insurance companies), noninstitutional (debt funds, private lenders, mortgage REITs) and government-backed (agency and SBA programs). The nine loan types below all come from one of those three buckets.
1. Permanent Commercial Mortgage
A commercial mortgage loan includes financing secured by any business property or investment property, said Noah Grayson, Strategic Financing Advisor at PropertyCashin.
Matt Wurtzebach of the Commercial Finance Group of Draper and Kramer, Inc. added that a commercial mortgage is a loan on any income-producing property, and noted that "commercial mortgage" is a broad umbrella term covering other loan types as well. The core product, though, is the permanent loan: long-term, amortizing debt on a stabilized property, underwritten on in-place cash flow using metrics like DSCR, debt yield and loan-to-value.
Commercial Mortgage Terms
Commercial mortgage terms vary greatly. Terms can range from a short interest-only loan to a 25- or 30-year amortizing mortgage, with rates driven by the lender type, leverage and asset quality — banks and life companies typically offer the sharpest pricing at moderate leverage. Many commercial mortgage loans include a prepayment penalty: if a borrower sells or refinances during the prepayment period, a fee must be paid to the lender.
2. Construction Loan
A construction loan funds ground-up development or major redevelopment. Rather than receiving the full amount at closing, the borrower draws funds as the project hits milestones, and pays interest only on what's been drawn. Banks are the dominant construction lenders, though debt funds have taken a growing share of the market — see the hard costs vs. soft costs both types of lenders will scrutinize in your budget.
Construction Loan Terms
Construction loans are short-term — typically 18 to 36 months, matched to the build and lease-up timeline — floating-rate, and recourse-heavy compared to other commercial loans. Lenders size them on loan-to-cost (LTC) and require a clear takeout: either a sale or a refinance into a permanent or bridge loan at completion.
3. Commercial Bridge Loan
A commercial bridge loan is a short-term, usually higher-interest-rate commercial mortgage, Grayson explained. A borrower would use a bridge loan when a commercial property does not yet qualify for permanent financing. The loan bridges a borrower from their current situation into a more favorable one. "It's a bridge from a current state to hopefully a permanent state after conducting some renovations or leasing," Wurtzebach said.
"For example, a borrower may take out a bridge loan to pull cash out of his property to pay off debt obligations and improve a low credit score, so he can refinance into a fixed loan at more favorable terms," Grayson added.
Bridge Loan Terms
Bridge loan terms usually range from one to three years and are interest-only, Grayson said. Rates float at a spread over SOFR, priced well above permanent debt and commensurate with risk. Bridge loans can also carry higher fees, including origination fees (a percentage of the funded loan amount paid at closing) and exit fees (a percentage of the remaining balance paid at payoff). For a deeper look, see our guides to the top commercial bridge lenders and bridge loans in Texas.
4. Commercial Hard Money Loan
A commercial hard money loan and a commercial bridge loan are interchangeable terms in most situations, Grayson explained. The main difference is that hard money lenders usually have higher rates, whereas "a bridge loan may be priced above conforming rates but may still be palatable," Grayson noted. Essentially, not all bridge loans are hard money loans, but all hard money loans are bridge loans. Hard money loans are priced for a higher degree of risk — they often come into play in transactions involving bankruptcy or foreclosure bailout — and are designed for borrowers who aren't eligible for traditional mortgage loans, so they carry the highest fees.
Hard Money Loan Terms
The terms of a hard money loan are similar to those of a bridge loan, Grayson said, but they "tend to veer toward the shorter end of the loan term spectrum and the higher end of the rate spectrum."
5. CMBS (Conduit) Loan
A CMBS loan — also called a conduit loan — is a commercial mortgage that gets pooled with other loans and sold to investors as commercial mortgage-backed securities. Because the lender is securitizing rather than holding the loan, CMBS can offer fixed rates and higher leverage on stabilized assets, and it's often available on properties or markets that banks have pulled back from.
CMBS Loan Terms
CMBS loans are typically 5- or 10-year fixed-rate terms, often with 30-year amortization or interest-only periods, and are generally non-recourse. The trade-offs: rigid prepayment protection (defeasance or yield maintenance) and less flexibility after closing, since the loan is serviced by a third party rather than a relationship lender.
6. Agency Loan (Fannie Mae, Freddie Mac and HUD)
For multifamily properties, government-sponsored enterprises are among the largest lenders in the country. Fannie Mae and Freddie Mac multifamily programs and HUD/FHA insured loans offer long-term, fixed-rate, non-recourse financing on apartment properties — usually the cheapest permanent debt available for stabilized multifamily.
Agency Loan Terms
Agency loans typically run 5 to 30 years (HUD loans up to 35+ years for some programs) with competitive fixed rates and high leverage relative to banks. In exchange, expect a more document-heavy process, property-quality requirements, and prepayment protection. If you own apartments and plan to hold, agency debt is almost always worth quoting alongside bank options.
7. Mezzanine Loan
A mezzanine loan or mezzanine financing is "an additional layer of financing or investor equity that takes a subordinate position to the senior debt or mortgage," Grayson said. A mezzanine loan is used after a borrower has taken out a traditional loan but still needs more capital to fund a purchase or capital expenditures — it fills the gap in the capital stack between senior debt and equity.
Mezzanine Loan Terms
Mezzanine loan terms can vary greatly, Grayson said, but typically they're short term, rarely exceeding five years. Mezzanine loans also come with a higher interest rate than traditional bank loans — often in the low-to-mid teens — depending on the risk of the borrower and business plan.
8. SBA 7(a) Loan
An SBA 7(a) loan is government-guaranteed small business financing provided by a Small Business Administration (SBA) approved lender. The SBA 7(a) lender funds the full business loan, Grayson said, and in the event of a default, the SBA will reimburse the lender for a substantial portion of the loan amount if the lender has followed the right protocol. In some instances, high-leverage financing of up to 100% of a property's value is available with the 7(a) program.
Through the 7(a) program, Grayson added, funds can be used for the purchase, refinance, renovation or ground-up construction of commercial real estate — as well as working capital, equipment, inventory, partnership buyouts, debt consolidation, business purchases, leasehold improvements and expansions. Note that SBA loans require the business to owner-occupy the property; they're not for pure investment real estate.
SBA 7(a) Loan Terms
Loans usually range from $25,000 up to $5 million, Grayson said. Rates can be fixed, but most lenders offer an adjustable rate, adjusted quarterly.
9. SBA 504 Loan
An SBA 504 loan is another government-guaranteed small business loan. In most cases, Grayson said, an SBA 504 loan will be funded 50% by the participating lender, up to 40% by a Certified Development Company (CDC), with the remaining 10% contributed by the borrower as cash or equity.
Unlike other SBA loans, funds cannot be used for working capital, inventory, debt refinancing or investments. However, borrowers can use the money to purchase machinery and equipment, business land or new facilities, or to modernize existing facilities, land, streets or utilities.
SBA 504 Loan Terms
SBA 504 loans range in size from $500,000 to $20 million+, Grayson said, with long terms — out to about 25 years — at fixed rates that track long-term Treasury yields.
How to Choose Between the Types of Commercial Real Estate Loans
A quick decision framework:
- Stabilized, income-producing property you plan to hold: permanent mortgage from a bank or life company; agency debt if it's multifamily; CMBS if you want non-recourse leverage.
- Ground-up development: construction loan, with your permanent takeout planned before you break ground.
- Value-add, distressed or fast-close deal: bridge loan — or hard money at the riskier end.
- Need more leverage than the senior lender will give: mezzanine debt or preferred equity behind the first mortgage.
- Owner-occupied business property: SBA 504 or 7(a).
Make Sure to Understand Your Financial Needs
Before seeking out commercial loans for real estate, it's important to understand your own financial needs and what you can realistically borrow. Just as important: quote more than one lender type. The spread between the best and worst term sheet on the same deal is real money, and lender appetite shifts constantly by asset class and market. Lev's Lender Search matches your deal against thousands of lenders' actual appetite and history, so you can run that process systematically instead of by referral.
