What is a Commercial Building Loan, and How Does it Work?

For many growing businesses, the time comes when more space or an additional location is needed. Commercial loans for construction and real estate purchases can make your expansion plans a reality sooner rather than later. Here’s what you need to know to find the perfect loan.

commercial building loan

Commercial Building Loans: They’re Not the Same as Regular Loans

You can get a loan to buy an existing building, add onto a property you already own or build something entirely new. The property itself acts as collateral to secure real estate loans, and construction loans may be secured or unsecured. Unlike a regular mortgage, which is given to an individual, commercial loans are given to business entities and are only for property intended to be used to generate business income.

However, the qualification procedure is pretty much the same as for other loan types. Once you find a lender, they’ll walk you through their application process, during which you’ll need to provide requested financial and business paperwork and details about the property. The lender will use this information to determine whether you qualify before presenting a loan offer. The process can be lengthy and requires detailed documentation to prove your real estate purchase or construction project is a worthy investment.

Commercial loan terms may run anywhere from 5 to 25 years and are structured in different ways depending on use. Some are fully amortized; others have shorter term lengths with extended amortization periods and require a balloon payment at the end.

What Types of Commercial Building Loans are Available?

There are many types of commercial loans for different purchases and building projects:

  • Commercial Bridge Loan – These short-term loans are often used to secure a property not yet eligible for long-term financing. Funding may be used to secure a good deal on a commercial location or make property improvements prior to applying for a mortgage.
  • Commercial Hard Money Loan – Similar to a bridge loan, hard money loans have short terms and are typically used for renovations.
  • Commercial Mortgage (Traditional) – A traditional mortgage structure is appropriate for purchasing a property ready for occupancy or remortgaging an existing location.
  • Commercial Construction Loan – Money from this type of loan can be put toward the cost of equipment and materials for expansion or new construction. It’s usually delivered on a “draw schedule,” where the lender provided funding in smaller chunks as the project progresses.
  • SBA 7(a) Loan – Available for purchasing land and buildings, making renovations or starting new construction, these loans provide generous funding with terms up to 25 years.
  • SBA 504 Loan – A 504 loan are granted specifically for the purchase of owner-occupied real estate and tend to be broken into two parts, with one portion of the funding coming from a bank and another from a development company.

Expect to make a down payment on any loan used to directly fund a property purchase or construction project. These payments are based on the loan-to-value (LTV) ratio of a property or the loan-to-cost (LTC) ratio on a construction project. For example, if you get a commercial mortgage at a 70 percent LTV, you’ll have to put down 30 percent of the purchase price of the property. There are also likely to be additional expenses, such as processing and documentation fees, which factor into the final cost of the loan.

Increase Your Chances of Qualifying for Commercial Building Financing

Commercial loans are commonly used to purchase or construct office space, retail locations, hotels, restaurants, multi-family real estate, industrial buildings and “special purpose” buildings. To qualify for funding, you need to understand how to get to get a commercial loan for building or buying the kind of property you’re looking for.

Real Estate

Typical requirements for real estate loans include:

  • Enough net operating income to support loan payments
  • Good credit score or FICO Small Business Scoring Service (SBSS) credit score
  • Limited liability or corporation structure
  • Good personal credit score with a reliable financial history
  • Details of property type and value, including an appraisal
  • Financial records, such as tax returns, reports, business records, cash flow projections and a business plan


Commercial construction loans also require a significant amount of paperwork. In addition to personal and business financial information, you may need to provide:

  • Contractor estimates
  • Project plans
  • Performance projections for the building, known as “proforma”

Banks also like to know a project is continuing as planned and will likely require you to provide updates as construction progresses. Building is a high-risk investment, and traditional lenders are far more wary of providing funding for projects that may not pay off according to projections.

Need Help Getting Your Next Business Building Loan?

Qualifying for a commercial mortgage or construction loan isn’t easy, and sometimes credit history can stand in the way of securing funding from traditional sources. If you’ve located just the right property for purchase or are itching to get started on a construction project but aren’t having luck with the bank, National Business Capital & Services may be able to help.

Don’t miss out the perfect expansion opportunity. Discuss your needs with a funding specialist at National, and see if a flexible commercial loan is the right fit for your business.

National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!


About the Author, Megan Capobianco

Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital & Services and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.