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You found a building that you love. Maybe it's a warehouse a few blocks from a main highway or a retail space on a bustling downtown street. Now you have to figure out how to pay for it, and that'll most likely mean financing.
I've spent my career arranging financing for small to midsize businesses (SMBs), and I tell my clients that making a decision on commercial real estate financing typically comes down to one question. Do you want to run your business out of the property or lease it out?
Your answer will help decide your lender pool, your down payment, and how long it takes to close.
| SBA loans | HELOC | Short-term business loan | Business line of credit | |
|---|---|---|---|---|
| Loan amount | Up to $5,000,000 | Up to $750,000 against home equity | $10,000 to $5,000,000 | Up to $5,000,000 |
| Funding speed | As fast as 2 weeks, typically 30 to 90 days | As fast as 1 week | As fast as same day | As fast as same day |
| Rate | APR starting at 6.75% | APR as low as prime | APR starting at 6% | APR starting at 6% |
| Repayment | 10 to 25 years | Up to 30 years, draw period up to 5 years | 6 to 36 months | Revolving, 6 to 36 months on what you draw |
| Credit score minimum | 640 | 620 | 550 | 600 |
| Collateral | Sometimes required | Home secures the line | Not required | Not required |
| Fits | Buying a property that your business will occupy | Covering a down payment with home equity | Renovation, fit-out, closing-cost gap | Ongoing working capital tied to a property |
Understanding Commercial Property Deals
The financing options available to you vary depending on what you're looking to do with the property.
Most commercial property deals are either owner-occupied (you plan to operate your business out of it) or investment-only (you're buying it to lease or resell).
Clarify Capital arranges U.S. Small Business Administration (SBA) loans up to $5 million for owner-occupied purchases. We also arrange working capital that can help fill the gaps, like short-term business loans and business lines of credit.
Commercial mortgages come from banks, credit unions, and specialized real estate lenders. The same goes for bridge loans, hard money loans, and construction loans. We'll go over these financing options below, but Clarify Capital doesn't arrange them.
SBA Loans for Owner-Occupied Commercial Real Estate
Both the SBA 7(a) and SBA 504 programs can help pay for a building you plan to operate out of. They can also fund new construction or the expansion of an owner-occupied property.
SBA occupancy rules are strict. For an existing commercial building, you have to occupy at least 51% of the rentable space and can lease out the rest. For new construction, you have to occupy at least 60%, you can permanently lease up to 20%, and you must plan to occupy everything that isn't permanently leased within 10 years.
Through Clarify Capital, you can borrow up to $5 million with APRs starting at 6.75%, repaid over 10 to 25 years. You'll need a credit score of 640, at least two years in business, and be able to show consistent revenue and financials.
The trade-off with SBA loans is timing. Funding can land as fast as two weeks, but typically takes anywhere from 30 to 90 days.
Using a HELOC for the Down Payment
A home equity line of credit (HELOC) gives you a revolving line of credit backed by the equity in your home. I see business owners use HELOCs when they're short on cash for a down payment on a commercial mortgage.
HELOCs through Clarify Capital run up to $750,000, with financing available as fast as one week, and rates as low as prime. Repayment runs up to 30 years with a draw period of up to five years. You only pay interest on what you draw.
The trade-off with a HELOC is that it can put your house at risk if the deal goes sideways because the lender's collateral is your home.
Short-Term Loans for Renovation and Gap Financing
Short-term business loans can help cover smaller line items around a large property purchase, like renovation, equipment, or contractor payments.
Through Clarify Capital, you can borrow $10,000 up to $5 million, with APRs starting at 6% and repayment over six to 36 months. Financing can land as fast as the same day for credit scores over 550.
This isn't a mortgage substitute. Think of it as something to cover the unexpected expenses that come up when buying a new piece of property.
Lines of Credit for Ongoing Working Capital
A business line of credit is revolving credit you can draw against as needed. I see SMBs reach for these financing options because of their flexibility. Interest only gets charged on what you use. So you can draw what you need, and pay it back when your cash flow recovers. APRs start at 6%, and repayment runs 6 to 36 months.
Minimum Qualifications
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
Property Types and Financing Fit
Different property types attract different lenders. Depending on the type of property you're considering, here's a breakdown of the primary financing path you can pursue through Clarify Capital, and any supporting financing to help fill in the gaps.
| Type of property | Primary path | Supporting financing |
|---|---|---|
| Office buildings | SBA 504 for owner-occupied office at 51% occupancy or more | HELOC for the down payment, short-term loan for fit-out and tenant improvements, line of credit for ongoing working capital |
| Retail space | SBA 504 for owner-occupied storefronts at 51% occupancy or more | HELOC for down payment cash, short-term loan for storefront fit-out and inventory ramp, line of credit for seasonal cash flow |
| Warehouses | SBA 504 for owner-occupied warehouses and light manufacturing | Equipment financing for forklifts, racking, and conveyors, and a short-term loan or line of credit for operational ramp |
| Mixed-use | SBA 504 sized against the commercial portion | HELOC or short-term loan for the gap between SBA sizing and total project cost, line of credit for working capital after move-in |
Other Commercial Real Estate Financing Categories
Here's a quick overview of the other commercial real estate financing options out there.
Clarify Capital doesn't arrange these, but they can still be good options, depending on your needs.
| Category | What it is | Typical lender |
|---|---|---|
| Commercial mortgages | Long-term commercial property financing for real estate that brings in income | Banks and credit unions |
| Construction loans | Loans funded in draws as construction progresses, you only pay interest on what you draw | Banks and specialty construction lenders |
| Bridge loans | Short-term financing that covers you until more permanent financing closes | Specialized commercial real estate lenders |
| Hard money loans | Short-term loans that are secured by the property | Private lenders |
How Lenders Evaluate Your Application
Underwriting looks different depending on what you're applying for. A bank or credit union typically runs an evaluation looking at tax returns, financial statements, a business plan, a property appraisal, a loan-to-value (LTV) calculation, a debt service coverage ratio projection, a personal credit pull, and a creditworthiness review.
For SBA deals, if you own 20% or more of the business, you'll have to sign a personal guarantee. Check out our SBA loan requirements for more details on what lenders need for these loans.
Here's what to look out for when you're applying.
Origination fees
This is typically a percentage of the loan charged at closing, which changes your true cost.
Prepayment penalties
This is a fee for paying the loan off early, which can wipe out your savings, especially if you're refinancing.
Balloon payments
These are low monthly payments with the remaining principal due when the loan matures.
Refinancing a Commercial Real Estate Loan
A few years ago, a trucking company owner came to me before a balloon payment was due on a commercial mortgage for his dispatch yard. We helped him refinance using SBA 7(a), freeing up his cash flow.
His situation isn't uncommon. Here are the reasons I see most often.
Rates dropped
Interest rates dropped, lowering your monthly payment and shortening the amortization period.
You want cash out
You refinance for more than you owe on the loan and take the difference in cash.
A balloon payment is coming due
You have one big payment due on your loan at the end of the term, like the trucker above, so you take out a new loan to cover it.
Finding the Right Financing
Good commercial real estate financing comes down to matching your needs to the right deal type and timeline. SBA financing works for owner-occupied purchasers who have lots of time. And HELOCs, short-term loans, and lines of credit can help handle the working capital needs around the transaction.
Apply today to see what you qualify for with Clarify Capital. Checking your options won't impact your credit score.
Frequently Asked Questions
Commercial real estate financing can be confusing. Here are the most common questions.
How Does Commercial Real Estate Financing Work?
Commercial real estate financing allows you to borrow to cover the cost of a property. The property secures the loan. Whether you plan to use the property as an investment or occupy it is what drives the rest of the process.
Do You Have To Put 20% Down on a Commercial Loan?
Not always. The borrower contributes at least 10% of the project costs, and the Certified Development Company covers up to 40%, under the standard SBA 504 structure. That contribution increases to a minimum of 15% if your business has operated for less than two years, or if it's a limited or single-purpose building. If both of those are true (less than two years, single-purpose building), at least 20% is required. Investment properties have higher requirements than owner-occupied ones.
What Is the Payment on a $1,000,000 Business Loan?
This depends on the interest rate, the amortization period, and whether the loan is fixed-rate or variable. Longer terms tend to lower the monthly payment and increase the interest paid. A shorter-term loan does the reverse. Over 25 years, $1 million amortized would cost you about $7,100 a month at a 7% interest rate and nearly $8,700 at 9.5% interest rate, before taxes and other fees.
Is It Hard to Get a Commercial Real Estate Loan?
The process is a bit harder than a residential mortgage. But it's not impossible. Lenders typically want to see that the business can carry debt. You'll be asked to provide tax returns, financial statements, a debt service coverage ratio above 1.25, personal guarantees, and more.
What Is the 2% Rule in Commercial Real Estate?
Under the 2% rule, monthly gross rent should equal at least 2% of the purchase price of a property.
How Does Clarify Capital Protect My Data?
Clarify Capital follows SOC 2 security principles. Our application collects only what a lending advisor needs to match you with lenders in our network. We don't sell your information.
Bryan Gerson
Co-founder, Clarify
Bryan has personally arranged over $900 million in funding for businesses across trucking, restaurants, retail, construction, and healthcare. Since graduating from the University of Arizona in 2011, Bryan has spent his entire career in alternative finance, helping business owners secure capital when traditional banks turn them away. He specializes in bad credit funding, no doc lending, invoice factoring, and working capital solutions. More about the Clarify team →
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