Commercial real estate loans finance acquisitions, refinances, and construction. Lenders evaluate how the debt will be repaid: rent and net operating income for leased property, business cash flow for owner-occupied property, or a development plan and exit for construction. They also review collateral and borrower or guarantor finances, then set payments that may amortize, remain interest-only, or leave a balloon balance. The OCC's commercial real estate lending handbook explains these differences for bank loans.
This guide covers the loan structures, terms, rates, and capital sources a borrower can compare.
How is a commercial real estate loan different from a residential mortgage?
CRE underwriting changes with the property's use and business plan. On a leased property, rent roll, occupancy, and net operating income (NOI) help establish repayment capacity. On an owner-occupied property, the occupying business's cash flow is usually the primary repayment source. Construction lenders also test project feasibility and the exit. Collateral and borrower or guarantor finances matter alongside each source, so two properties can support different terms even with the same sponsor.
Common CRE sizing metrics, used where they fit the loan and property, include:
- DSCR (debt service coverage ratio) — net operating income divided by annual debt service, measuring whether the property's cash flow covers the loan payment.
- LTV (loan-to-value) — loan amount divided by appraised property value.
- LTC (loan-to-cost) — loan amount divided by total project cost, more common on acquisition-plus-renovation or ground-up deals.
- Debt yield — NOI divided by loan amount, a leverage-independent risk measure lenders increasingly rely on alongside DSCR and LTV.
- Cap rate — NOI divided by purchase price or value, used to sanity-check valuation and pricing.
Residential loans also typically fully amortize over 15-30 years at a fixed rate. CRE loans frequently don't.
What loan structures are used in commercial real estate?
Commercial real estate loans are structured around three core mechanics — amortization, interest-only periods, and balloon payments — often combined within a single loan rather than used in isolation. A CRE loan might carry a 25-year amortization schedule for payment-sizing purposes but come due, in full, after just 5, 7, or 10 years.
- Fully amortizing: Principal and interest pay the loan off completely over its stated term (common on SBA and some smaller bank loans). Payments are level, and the balance reaches zero at maturity.
- Interest-only (IO): The borrower pays only interest for a defined period — sometimes the entire term on bridge debt — lowering the payment and boosting cash-on-cash return, but not reducing the balance.
- Balloon structure: Payments are calculated on a longer amortization schedule (often 25-30 years) than the loan's actual term (often 5-10 years), so a lump-sum "balloon" payment is due at maturity. This is standard for bank, agency, and CMBS permanent loans — the borrower must refinance or sell before the balloon date.
Worked example: A $4M loan at 6.75% on a 25-year amortization schedule carries a monthly payment of roughly $27,700. Over a 10-year term, the borrower will have paid down the balance to approximately $3.15M — leaving an $3.15M balloon payment due at year 10, financed through a refinance or sale.
| Structure | Principal paydown | Payment size | Common uses |
|---|---|---|---|
| Structure Fully amortizing | Principal paydown Reaches $0 at maturity | Payment size Higher (P+I from day one) | Common uses SBA loans, smaller bank loans |
| Structure Interest-only | Principal paydown None during IO period | Payment size Lowest | Common uses Bridge loans, some agency/bank permanent loans |
| Structure Balloon (partial am.) | Principal paydown Partial, per amortization schedule | Payment size Moderate | Common uses Bank, agency, CMBS permanent loans |
What terms, LTV, and rates are typical for commercial real estate loans?
Typical commercial real estate loan terms run 5-10 years for permanent debt (with amortization schedules of 25-30 years), maximum leverage of 65-80% LTV depending on lender type and asset class, and rates that are quoted as a spread over an index like SOFR or the relevant Treasury yield rather than a flat number. Multifamily lending through Fannie Mae and Freddie Mac, for instance, commonly caps standard loans around 80% LTV with a minimum underwritten DSCR near 1.25x, tightening to roughly 75% LTV at some loan tiers.
| Loan Category | Typical Term | Typical LTV/LTC | Typical Rate Basis |
|---|---|---|---|
| Loan Category Bank permanent loan | Typical Term 5–10 yrs (25–30 yr am.) | Typical LTV/LTC 65–75% LTV | Typical Rate Basis Prime or Treasury + spread |
| Loan Category Agency (Fannie/Freddie multifamily) | Typical Term 5–30 yrs | Typical LTV/LTC Up to ~80% LTV | Typical Rate Basis Treasury + spread |
| Loan Category CMBS | Typical Term 5, 7, or 10 yrs (25–30 yr am.) | Typical LTV/LTC 65–75% LTV | Typical Rate Basis Swap rate + spread |
| Loan Category Bridge loan | Typical Term 6–36 months | Typical LTV/LTC 65–80% LTV/LTC | Typical Rate Basis SOFR + spread |
| Loan Category SBA 504 / SBA 7(a) | Typical Term Up to 25 yrs | Typical LTV/LTC Up to 90% LTV | Typical Rate Basis Fixed or Prime + spread |
Rate and leverage move together: a lender willing to go to 80% LTV on a transitional asset is pricing in more risk than one capping out at 65% on a stabilized, Class A property. For DSCR-based investor loans specifically, our companion guide on DSCR loan requirements covers qualification thresholds in depth — this piece focuses on mechanics that apply across all CRE loan types.
Who actually lends on commercial real estate?
Commercial real estate capital comes from banks, government-sponsored agencies (Fannie Mae and Freddie Mac for multifamily), CMBS conduits, and private debt funds. Brokerages and marketplaces connect borrowers to those capital sources rather than originate loans; each channel has different risk appetite, speed, and pricing. Understanding which lender type fits a given deal is often more important than shopping for the lowest advertised rate.
- Banks and credit unions: Relationship-driven, moderate leverage, competitive rates for stabilized properties with strong sponsors; slower and more conservative on transitional deals.
- Agencies (Fannie Mae / Freddie Mac): Multifamily-focused, high leverage, long amortization, non-recourse — but with strict property and sponsor eligibility standards.
- CMBS conduits: Securitize pooled commercial mortgages into bonds sold to investors; offer non-recourse, fixed-rate permanent debt across asset classes, but come with less flexibility once the loan is sold and securitized.
- Private debt funds / bridge lenders: Fast, flexible, higher leverage on transitional deals — at a materially higher rate than bank or agency execution.
- Marketplaces: Platforms like YieldStack connect a single deal submission to multiple lender types simultaneously — matching it against 20,000+ loan programs — letting sponsors compare bank, agency, and debt fund quotes side by side instead of approaching each one individually. YieldStack is a broker/marketplace, and charges nothing upfront.
What should a sponsor understand before shopping for a CRE loan?
Before approaching lenders, a sponsor should identify the likely repayment source and show the figures behind it: trailing and projected NOI for leased property, operating cash flow for owner-occupied property, or a budget and exit for construction. Then calculate the DSCR, LTV, LTC, or debt yield that applies at the requested loan amount, and identify lender types that fit the asset's status and the sponsor's track record. Walking into a bank conversation with a half-vacant value-add deal — or into a bridge lender conversation expecting agency-level rates on a stabilized asset — wastes time on both sides.
Running preliminary numbers through an underwriting calculator and modeling the expected payment with a commercial real estate loan calculator before a single call to a lender turns a vague financing plan into specific numbers you can defend. For a full comparison of the seven main loan types by rate, term, and best use case, see our comparison guide, and for the actual step-by-step process of closing a loan, see how to get a commercial real estate loan.
The bottom line
The repayment source leads CRE underwriting, with collateral and borrower or guarantor strength reviewed alongside it. DSCR, LTV, LTC, and debt yield matter where they fit the property and loan type. Structures vary widely (fully amortizing, interest-only, balloon), terms are typically shorter than residential mortgages even with long amortization schedules, and the lender universe spans banks, agencies, CMBS conduits, and private debt funds, each suited to a different type of deal. Understanding these fundamentals is the prerequisite for shopping multiple lenders effectively and avoiding a mismatched term sheet. When you are ready to shop, submit your deal once and let YieldStack — a broker/marketplace — match it against 20,000+ loan programs and return competing quotes at no upfront cost.