Best Commercial Real Estate Loans

Loans and mortgages are key financial instruments that can fundamentally impact your business financial decisions. Whether for building your dream home or getting that limited edition Cadillac you've always wanted, a loan can help you get there. As for business owners looking to leverage this essential financial instrument, a business loan affords many similar opportunities.

Business loans come in different varieties and sizes. For instance, the standard term loan can pay for purchasing new office equipment, training new employees or as a fresh infusion of capital. 

However, suppose you want a loan for your real estate business — anything from leasing out new office buildings to remodeling your office space or maybe a complete company makeover. In that case, your standard business loan no longer cuts it. You'll need a better and more robust alternative — a commercial real estate loan.

Commercial real estate (CRE) loans are mortgages specifically tailored toward financing commercial real estate — income-producing properties solely used for business purposes. Similar to other traditional mortgages like home mortgages for self-employed, banks and independent lenders play an active role in CRE lending.

CRE loans also come in various varieties and types. Some lenders provide coverage for specific offers like flip funding or offer online services while others give general coverage. As their services differ, so do their loan terms and rates. Some can be good for you, and others can be as bad. Therefore, making an informed decision when looking for CRE loans to finance your real estate investment is essential.

To help you reduce the hassles of having to check through a long list of lenders individually, Benzinga compiled some of the best commercial real estate loan providers across different categories.

Best Overall: Lendio

options. In that case, you'll probably want to check out Lendio. The lender's extensive loan offerings and streamlined borrower's experience highlight its best qualities as the best overall CRE lender in the open market. Lendio isn't a typical lender. Rather, it's a lending marketplace with over 75 lending partners. Its platform gives you access to an aggregate of loan offers available based on your specific financial needs.

With Lendio, you submit a single application or loan proposal through the app. The proprietary algorithm matches your application to several lenders based on your financing needs. Your assigned funding manager helps you compare willing lenders and select the most suitable for your business, making the application process more manageable. The process works for many kinds of loans. Hence, regardless of what type of loan you want (CRE loans or otherwise), you'll be able to find the best-matching loans and compare rates to make a more informed decision.

The wide range of funding options Lendio provides creates opportunities for business owners to get loan approval faster. Furthermore, the application process costs nothing, and you get the same rates the lender offers. Perhaps its best feature is allowing borrowers to compare offers and rates from different lenders. This feature makes loan shopping easier and faster. 

However, Lendio has downsides. For instance, it might take a longer funding time than individual lenders because it needs at least a day or two to help you get the best deals. But its advantages outweigh its disadvantages. Lendio remains a top lender to consider if you are looking at securing a CRE loan.

Best for Small Commercial Real Estate Loans: Bank of America

Commercial loans are typically large-volume loans. Seven-figure payouts are regular. Bank of America's (BoA’s) real estate loan, however, is an oddball. By leveraging BoA, you don't have to worry about not having access to small- or medium-sized CRE loans.

With just $25,000, you can get a CRE loan and still enjoy the favorable terms and rates unique to real estate loans, even the giant-sized ones. If you think this is too good to be true, then you are probably right. At least partially. As juicy as BoA's offerings are, qualifying for a real estate loan is no easy task. This lender has a bevy of strict requirements for loan application approval. 

For instance, BoA requires a higher credit score (around the 600s), more revenue and extended business history than other lenders. The implication is that the loan may not be ideal for young startups or businesses still building credit. Furthermore, because BoA is a traditional bank, you can't apply for most of its loans online. This aspect makes the application process relatively slow, hence a slow funding time.

Nonetheless, suppose you are qualified, and you're not in haste. In that case, approaching BoA for a CRE loan is a great idea to transform your business.

Best for Hard Money Loans: Flip Funding

For realtors looking to fix and flip or rehab a property, getting a suitable hard money lender is essential. Flip Funding's extensive commercial hard money loan offerings and zero repayment penalty makes it the best lender for borrowers looking to flip and rehab.

Flip Funding has a variety of offers for hard money loans. There's the line of credit targeted at repeat rehabbers, a rehab-only loan meant to finance repairs on the borrower's property and a fix-and-flip loan for flippers. With Flip Funding, you don't have to worry about losing out on a great deal due to delayed closure. The lender has a solid track record of fast deal closure.

Before you dive into applying for your hard money loans, be sure to have an underlying refinance or pay-off plan for your Flip Funding loan after the short loan term expires.

Best for SBA Real Estate Loans: SmartBiz

If you're looking to secure an SBA loan (government-backed), SmartBiz is a great platform to get started. Similar to Lendio, SmartBiz is a lending marketplace for business loans. However, unlike Lendio, the platform is solely dedicated to aggregating and providing available SBA loan offers for the SBA loan program. Thanks to the SBA guarantee, SmartBiz charges relatively lower bank rates compared to other online lenders or traditional bank rates. 

Furthermore, by exposing you to a wide variety of lenders, the platform increases your chance of getting an SBA loan quickly and also makes the application process more manageable. However, the requirements needed to qualify for an SBA loan through SmartBiz are stricter than other online lenders, making it inaccessible for businesses with bad credit.

Another downside to SmartBiz is that the application process can take a long time (about a week or two), which is relatively slow. But compared to many traditional SBA lenders, where you might need to wait for a more extended period, securing an SBA loan through SmartBiz is still worth it. Overall, SmartBiz offers a simple and efficient way to apply for CRE SBA loans.

Best for Owner-occupied Commercial Loans: PNC

Suppose you'd rather complete a simple real estate project instead of undertaking a grand project like purchasing an investment property — maybe something along the lines of renovating your photography studio or retrofitting your office space. In that case, PNC is your best bet. 

PNC offers loan options for owner-occupied real-estate investment and refinances with a provision for discounts — depending on the nature of your loan agreement. The downside is that PNC loans are not as widespread as loans from mainstream CRE lenders. PNC loan services are available in only about half of the U.S. states.

Features to Look for in the Best Commercial Real Estate Loans 

With various CRE loan companies available, identifying companies that offer the best services can be challenging. However, looking out for key features can help you make a better choice. Here are some features to look out for before applying for CRE loans.

Rates

The loan rate is one of the fundamental features you must consider before choosing a CRE lender. Rate types can be fixed or variable. Usually, a fixed rate works better. So while doing your research, be sure to take note of the rate type. Once you've narrowed down your choice, you'll want to compare the rates you've been offered with what other lenders are offering. Your best CRE lender should have the best rate.

Terms

Understanding the loan terms gives you clarity, especially regarding duration and payback time. The loan term also needs to align with the purpose. For instance, if you're pursuing a long-term project, you can go for a lender with a long repayment term rather than a short-term one and vice versa. Either way, look out for lenders that offer the most practical terms.  

Loan purpose

CRE loan providers are not a jack of all trades. Most lenders have a specialization. While some provide small-sized real estate loans, others could be SBA loan providers. Therefore, it is essential to ensure that the purpose of the loan you are getting matches your goal. You don't want to get an SBA loan when you want to flip a property. You should be looking for flip lenders instead.

Customer service

The importance of good customer service cannot be overstated. This criterion is as essential as others on the list, if not more. Good customer service can be of crucial help during the loan application process, refinancing and loan repayment. With guidance from experts, you'll be able to avoid certain pitfalls and mistakes in your loan application through the repayment journey. Be sure to do your research and due diligence. The better the customer service, the better and more efficient the company.

How to Get Approved for a Commercial Real Estate Loan

As with any type of loan or credit application, you may or may not get approved for a CRE loan. An application doesn't imply automatic approval. There are, however, specific steps you can take to improve your chances of getting approved significantly. Some of them are:

Show profitability

Solid profitability equals good credit scores. Showing that your company's finances are in order can be crucial to the success of your loan application. Your bank or lender will want to assess your ability to meet your loan terms. Showing profitability is proving your capabilities.

Prepare relevant documentation

Imagine calling a plumber to fix your leaking sink, and he shows up at your doorstep empty-handed. Chances are, you won't even let him inside as you won't have confidence he can do what he says. The same applies to your loan application. 

Your bank or lender won't take you seriously if you don't have the required information attached to your loan application. These include your updated financial statements, a good business plan and other information about the property you are interested in.

Have a well-thought plan for the loan

A common mistake borrowers make is applying for a loan without considering how they'll manage the real estate project. Such a mistake is a recipe for a failed application. Most lenders are not obsessed with how you want to repay the loan but how you plan to use the loan to drive results. So you need a comprehensive and convincing plan on how you want to use the money. A clear-cut plan tells your bank or lender that your application isn't just a spur-of-the-moment thought, increasing your chances of approval.

Know your credit score

A credit score is a number that summarizes your credit history and is calculated using spending and repayment criteria, though other factors may be required. Knowing your credit score gives you clarity regarding where you stand financially. With this knowledge, you can decide whether to keep up the good work or to buckle down and tighten your finances. Furthermore, when you know your credit score, you won't oversell or undersell yourself. For instance, with a strong score you don’t have to accept a loan offer with more restrictions and poor terms.

How you can Improve Your Credit Score

In mortgage finance, a good credit score sends a message that you prioritize settling your debts over anything else, and you do so consistently. Here is a quick look at some approaches that will help improve your credit score from now on.

Understand your debt-to-income ratio

A debt-to-income ratio (DTI) is calculated by adding all your monthly debt payments and dividing them by your gross monthly income. From the lenders' perspective, a lower debt-to-income ratio means you can repay your loans when due. Usually, 43% is the highest DTI ratio a borrower can have and still be qualified for a mortgage. Still, ideally, lenders will prefer a lower one.

Strictly speaking, your DTI ratio compares how much you earn each month to how much you owe. It is a window that allows you to analyze your finances from a creditor's point of view. It shows how much of your income you spend on debt payments (mortgage, credit cards, rent). Understanding your DTI ratio will help you prioritize essential spending and spur you to safeguard yourself financially.

Settle your debts

Settling your debt is a simple yet highly effective way to raise your credit score. Since your credit score divides how much you owe by how much you earn, owing less naturally translates to higher credit scores. The less you owe, the better.

Pay your bills on time

Regardless of every other approach you adopt to improve your credit score, none of them will be effective if you pay your bills late. Worse, late payments reflect on your credit reports for up to seven and a half years. Therefore you must try as much as possible to pay your bills on time. One great approach that works is setting up an automatic bill payment. However, to do this, you'll need to ensure there is enough money in your account to cover your bills. If not, your account will go into overdraft, which will lower your credit score, and that's certainly not what you want.

Consistently review your credit report

Reviewing your credit score is another excellent approach to improving and maintaining a good credit score. When you consistently review your credit score, you can identify variations in time among constantly changing credit factors. Subsequently, you can take appropriate action depending on the specific variations. Furthermore, through reviews, you can identify erroneous reports that can increase your credit score. Early identification gives you time to dispute such a report and get it corrected, so your credit score remains solid.

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