Capital Max | Is It Difficult to Secure a Commercial Real Estate Loan?

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Commercial Real Estate Loan

Conventional lenders have rigorous lending processes, making securing a commercial real estate loan hard and time-consuming. They will typically request every financial detail and assess your creditworthiness and income or business financial stability. 

If you do meet all the conventional lender’s requirements, the process will be fairly easy for you, but how easy is it to achieve over 600 credit scores? This is why some firms and institutions offer hard money commercial real estate loans. 

How Does a Commercial Real Estate Loan Work?

A commercial real estate (CRE) loan is used to invest in business-related properties like office buildings and apartment complexes.  With a commercial real estate loan, you can buy new properties and improve your income-producing properties. Corporations, trusts, limited partnerships, developers, and sometimes individuals can borrow a CRE loan. 

Commercial real estate loans from small business administration, traditional institutions, and banks require that your property be owner-occupied. This means that your business must reside in a minimum portion of the property. These owner-occupied requirements make it difficult to secure a loan to purchase commercial property you do not plan to occupy.

Commercial Real Estate Loan Eligibility Requirements

A commercial loan eligibility requirement depends on your choice of lender, your business type, and your purpose for applying for the loan. Here are most lenders’ major requirements for securing a commercial real estate loan.

Credit Score and History

The lender will request your business credit score and assess it to determine whether you’re eligible for a loan. Your credit score will provide them valuable insights into the financial health of your business. A strong credit score indicates financial responsibility and a great record of paying your debts on time. 

Lenders use your credit score to determine if you get favorable terms on the payback period, minimum down payment, and interest rate. So, a poor credit score and history will lower your chances of getting approved and favorable loan terms.


Lenders require collateral for secured loans. The collateral can include real estate, inventory, or equipment the lender can seize if you default on repayment. This serves as a risk mitigation for the lenders and a way to protect their investments. 

Some lenders make it mandatory to use the property you want to purchase as collateral. They will conduct a full appraisal to ensure that the property’s value covers the amount you want to borrow. So when you default, the lender can take over the property or sell it off to recoup the amount you have failed to repay.

Personal Guarantor

Some lenders may require a guarantor; in most cases, it will be the business owner/borrower. The guarantor must ascertain that if the business defaults, the loan will be paid. This means that if the business cannot repay the loan and liquidating collateral isn’t enough, the borrower is responsible for offsetting the remaining amount. 

Lenders will assess the guarantor’s credit history, income, and assets. If the business owner/borrower has a poor credit score and history, tax liens, and past court judgments, their chances of getting loan approval are low.

Cash Flow

Lenders will request detailed financial documents of the business so they can conduct a detailed examination of its cash flow. This will help them understand how your business manages its operating costs compared to its debts. A positive cash flow proves that your business can continue operations while repaying the loan. 

However, most lenders require a minimum stable net income of 20% more than the debt of the business owner/borrower. Lenders consider small businesses to be a high risk as they have a higher fail rate, so they are less likely to grant them loan approvals.

Types of Commercial Real Estate

There are several types of investment properties that are classified as commercial real estate. The major requirement is that it should be an income-based property. Major types of commercial real estate are:


Types of industrial properties include: 

  • Cold storage 
  • Heavy manufacturing 
  • Bulk warehouse 
  • Light assembly 
  • Showrooms

Office Space

Office buildings are classified into three tiers: Class A, Class B, and Class C. Examples of office spaces include: 

  • Central business district buildings 
  • Medical offices 
  • Commercially zoned homes


Types of retail spaces include:

  • Strip malls and shopping centers 
  • Outparcel
  • Regional mall
  • Community retail center 
  • Power center 


Examples of hospitality properties include: 

  • Resort 
  • Short-term rentals 
  • Casinos 
  • Boutique hotels 
  • Limited service and full-service hotels

Multi-family Housing 

Types of multi-family housing investment properties include: 

  • Student housing
  • Mid-rise apartments 
  • Senior/assisted living 
  • High rise apartments 
  • Subsidized housing

Special Purpose

These types of buildings include: 

  • Churches 
  • Open-plan amusement parks 
  • Theaters 
  • Schools

Benefits of Investing in Commercial Real Estate

Commercial real estate investing offers several benefits, including 

Income Potential

Commercial real estate offers the opportunity to generate stable income. After repaying your loan and other expenses, you get to keep your property and the rent your commercial tenants pay. Commercial buildings have higher rents compared to residential properties, which means as a commercial investor you have a higher potential for returns. 

However, you should note that the potential for high income also depends on the location and type of commercial real estate property. An annual return on the purchase price of most commercial real estate buildings is around 6-12%.

Investment Opportunities

Commercial real estate investing offers you a lot of flexibility with the type of industries you can choose to enter. You can choose whichever commercial real estate type or scale works for you. You can choose to start small with student housing or go big by investing in a casino. 

You can also decide to diversify your property portfolio by investing in different types of commercial properties. Unlike residential real estate, Commercial real estate has little competition. Research into each market so you can make a well-informed decision for your portfolio.

Limited Management

In most arrangements teh commercial tenants are responsible for maintaining the building. You can choose to make improvements and upgrade appliances to increase your property’s value, but daily upkeep will be left to your tenants. 

You could also choose to include other expenses like insurance, property taxes, and utilities in your arrangements. You do not have to be as engaged with commercial tenants as you would as a landlord of a residential property.

Types of Commercial Real Estate Loans

Whether you’re a business or an individual, finding the right commercial real estate loan is key to growing your portfolio and securing properties. Two common types of CRE loans investors seek are

Traditional Commercial Loan 

This is one of the most well-known commercial real estate loans. It is mainly offered by banks and other traditional institutions. You can use this type of loan to purchase a few properties, including office buildings, industrial properties, and retail spaces. Traditional/conventional commercial loans have strict requirements that make them quite harder to qualify for compared to other loans

Some of these requirements include seasoned funds, a high credit score and clean credit history, positive cash flow, and proven business success. The terms for this loan depend on the lender you choose. Most conventional lenders offer longer repayment terms and low-income rates.

Hard Money Loans

This type of loan is funded by private firms or individuals with an in-depth understanding of the commercial real estate market. Hard money lenders offer flexible financing options and have lenient requirements. If you do not meet all the requirements of a conventional lender or need to secure funds quickly to finance a property, hard money lenders are your best bet.  

Hard money loans are approved faster but have high interest rates and short repayment periods. However, you can always strike a deal with a hard money lender to create a customized loan package that works for you. 

Commercial Real Estate Loans with Capital Max

Capital Max is a creative finance firm that offers hard money loans. Now that you understand that commercial real estate loans are not that difficult to secure if you’d like to apply for this loan, contact our team at Capital Max. Unlike conventional banks, we offer more flexible terms because we help you get loans based on equity. At Capital Max, we provide knowledgeable real estate finance services