Construction and commercial

A commercial loan is for the investor buying income property and the business buying its own building

A commercial real estate loan is a business-purpose loan on property that earns income or houses a business: an apartment building with more than four units, a mixed-use building, retail, office or industrial property, or the building your own company occupies. The loan is underwritten on the property's income and on you as its sponsor, it can run on a shorter term than a home mortgage, and it sits outside the federal consumer mortgage rules a home loan carries, so the terms are what the loan documents say. We arrange commercial real estate loans on each of these property types. This page says how that works, what it costs, and where it is not the right loan.

Talk to us about the property

The program in one box

What it is: A business-purpose loan on property that earns income or houses a business, repaid from what the property earns rather than from your paycheck.
The property: An apartment building with more than four units, a mixed-use building, retail, office or industrial property, or the building your own business occupies.
How it is qualified: On the property's net operating income measured against the loan's debt service, and on you as the sponsor: your experience, your net worth and the liquidity you keep after closing.
Recourse: With recourse, where you stand behind the loan personally if the property cannot pay it, or without, where the lender's claim is the property alone. Which one is a term to negotiate, not a given.
How it is repaid: Can be on a shorter term than a home mortgage and end in a balloon: a lump sum due when the term ends, paid by a refinance or a sale. A prepayment penalty can apply.
What it costs: Each lender prices its own loan: the rate, the lender's fees, the third-party reports, any points and any prepayment penalty are all part of the price.
What the law does not do for you: A business-purpose loan is outside the federal consumer mortgage rules. There is no Loan Estimate and no ability-to-repay review on your behalf; the terms are what the loan documents say.
Where it is not the answer: A rental of one to four units, which can be financed with a residential loan, DSCR or conventional, and a home of one to four units you will live in, which a residential loan is made for.

What this program is good at

The property carries the loan. A building whose income covers its debt service can be financed on that income, with your own pay stubs a smaller part of the file than they are on a home loan.
Lenders differ by property type, by loan size and by appetite, and a bank that passes on a retail building may want an apartment building.
If your business will occupy the building, the Small Business Administration's loan programs belong in the comparison alongside a bank's own commercial loan.
Recourse, the prepayment penalty and the balloon are terms you can raise with a lender, and the term sheet is where that starts. Read every document before you sign it.
A rental of one to four units can be financed with a residential loan instead of a commercial one.

Who qualifies

What a lender weighs before this program is on the table. A lender can add rules of its own, and those rules can differ from one lender to the next.

The property's income

The first question is whether the property's net operating income, the rent and other income left after operating expenses, covers the loan's debt service with room to spare. Lenders measure that as a coverage ratio and each sets its own floor, and the leases, the vacancy and how the expenses are documented all move the answer. A rent roll and the operating statements are where that conversation starts.

You as the sponsor

A commercial lender underwrites the sponsor as well as the building: your experience with property like this one, your net worth, and how much liquidity you would have after closing. A first commercial purchase can narrow the field of lenders and can change the recourse terms.

Equity and recourse

Whether the loan is with recourse, where you personally stand behind it, or without is settled in the term sheet, and the answer can turn on the strength of the property and the sponsor.

Ability to repay, and who checks it

A commercial real estate loan is business credit. The federal ability-to-repay rule and the Loan Estimate are written for a loan on a home, and a business-purpose loan is outside both. That is what lets the loan be qualified on the property instead of on your tax returns, and it is also why no regulator is reading the commitment letter for you. Read it with your accountant or your attorney.

Where it is not the answer

A rental of one to four units can be financed with a residential loan, DSCR or conventional, instead. A home of one to four units you will live in is a residential loan question, not a commercial one. A property with no income yet, a vacant building or land you mean to build on, can be a bridge, hard money or construction question first and a commercial loan once the property is producing.

How it works with us

What happens once you get in touch

The steps in order, so you can see what is coming. Nothing here is underwritten until a lender underwrites it.

Call us about the property
Commercial lending starts with a conversation rather than the online application, because the first thing to settle is whether the property and the plan are a commercial loan at all. Tell us what the property is, what it earns, and what you want to do with it.
We build the package
A rent roll, the operating statements, the leases, your personal financial statement and a record of the property you have owned before. That package is what a commercial lender reads, so it is worth building well.
Term sheets from lenders
We send the package to lenders that make this kind of loan. A term sheet sets out the rate, the term, the amortization, the recourse, the prepayment penalty and the reports the lender will order.
The commitment letter
After the appraisal, the environmental report and underwriting, the lender issues a commitment letter. Read it line by line before you sign, because on a business-purpose loan there is no Loan Estimate or Closing Disclosure behind it.

What people ask about this program

If yours is not here, call us. The useful answer depends on your file.

What counts as a commercial real estate loan?

A commercial real estate loan is a business-purpose loan on property that earns income or houses a business: an apartment building with more than four units, a mixed-use building, retail, office or industrial property, or the building a company occupies. A rental of one to four units can be financed as residential property instead, with a DSCR or conventional loan, even when the borrower is an investor.

How is a commercial loan qualified if not on my income?

A commercial lender underwrites the property first, measuring its net operating income against the loan's debt service, and then the sponsor: your experience with similar property, your net worth, and the liquidity you would have after closing. Because the loan is for a business purpose, it sits outside the federal ability-to-repay rule written for home loans, which is what allows the property to carry the file.

Does a commercial loan have a balloon payment?

It can. A commercial real estate loan can run on a shorter term than a home mortgage and end in a balloon, a lump sum due when the term ends that is paid off by refinancing or selling the property. The term sheet states whether the loan amortizes fully or balloons, and it is one of the terms worth settling before you sign.

Can I use a commercial loan to buy the building my business is in?

Yes. An owner-occupied business property can be financed with a commercial real estate loan. If your company will occupy the building, the Small Business Administration's loan programs belong in the comparison alongside a bank's own commercial loan, and which one fits depends on what the money is for beyond the building itself and on how long you plan to hold it.

Is a commercial loan more expensive than a home loan?

It can be. The rate, the lender's fees, the third-party reports, any origination points and any prepayment penalty all go into what it costs. None of them is priced on a web page, because the price depends on the property, the lender and the day; the term sheets are where the numbers are.

Investor and self-employed

DSCR loan

Qualified on the rental's rent rather than your tax returns. A business-purpose loan for an investor, priced like one.

The rent qualifies the loan, so a rental that carries itself can be bought or refinanced without reopening your tax returns, your business's returns or the entities behind them.
A purchase or a refinance, including cash out of a rental you already own, which is how one property's equity becomes the next property's purchase.
The loan can be made to an LLC that holds the property.

More about DSCR

Short-term and renovation

Hard money and private money loans

Short-term, asset-based money from private lenders, for a property or a timeline a bank will not take. It costs more.

The lender underwrites a property and a plan rather than a full income file, and it sets its own timeline and its own price for that.
A property a bank will not lend on in its current condition, a house with no kitchen, a vacant building, raw land, may still find a private lender, because the lender is looking at what it is worth and what it will be worth once the plan is done.
It is qualified on the property and the exit rather than on pay stubs. That is because a business-purpose loan on property you do not live in sits outside the federal consumer mortgage rules, not because any lender is doing you a favor, and it is why the purpose on the file has to be true.

More about Hard money

Short-term and renovation

Bridge loan

Uses the equity in the home you own to buy the next one before the first has sold. Short-term, costs more, and only as safe as the sale.

Your offer on the next home does not have to be contingent on selling this one, which matters when a seller with more than one offer can set a contingent offer aside.
You move once, straight into the next home, instead of selling, renting for a stretch and moving twice.
The equity you have built in your current home does the work, instead of sitting locked until the sale closes.

More about Bridge

Where this program fits:Buying a home Refinancing The county's loan limits The Central Coast Services

Published by

California Mortgage Solutions Inc. · Company NMLS #325189

This page is general information about a loan program, not an offer of credit or a commitment to lend. What a lender will do with your file depends on the file.

Tell us about the property, what it earns and your timing

This one starts with a call rather than the application.

Talk to us about the property

No credit pull to get started. This is not a commitment to lend. Equal Housing Opportunity.