Conventional commercial loans

A conventional commercial loan is financing for commercial real estate that carries no government guarantee. It’s a full-documentation, or “full-doc,” loan: you provide complete income and asset records. In return, well-qualified borrowers typically get the best pricing available.

Use it to buy, refinance or build commercial property.

A good fit if you have:

• A credit score of 650 or higher
• Solid, documented business and personal financials
• A loan need between $250,000 and $4 million
• A property that earns enough to cover its loan payments

Probably not the right fit if:

• You can’t fully document income. See no doc commercial loans.
• You’re short on down payment or credit history and will occupy the building. See SBA 7(a) loans for commercial real estate.
• You need money for operations rather than property. See business funding.

A bank, credit union or private lender makes the loan with no federal guarantee. An SBA loan, by contrast, carries a partial guarantee. Because the lender takes the full risk, approval leans on you and the property. Lenders look at your credit history, documented cash flow, collateral and the property’s income.

They measure that last point with the debt service coverage ratio (DSCR). It’s the property’s net operating income divided by its yearly loan payments.

For example, a property with $120,000 in net operating income and $100,000 in yearly payments has a DSCR of 1.2. It earns 20% more than it needs to cover the loan. Most conventional lenders look for at least 1.20 to 1.25. Our DSCR calculator shows where your property lands.

Rates can be fixed or variable. They depend on your credit, the loan term and market conditions. Typical norms:

• Loan amount: $250,000 to $4 million
• Term: generally 5 to 20 years. Some loans use a balloon structure: lower monthly payments, with a larger final payment at the end.
• Underwriting fee: typically a $1,500 to $2,500 refundable fee upfront. It becomes non-refundable if you accept a written loan offer and the loan doesn’t close.
• Points: normally 1% to 2% of the loan amount, collected at closing, depending on the scenario
• Prepayment: many loans allow early payoff, but some carry prepayment penalties. Always check your loan agreement.
• Typical turnaround: 30 to 45 days

Both finance commercial real estate. They suit different borrowers.

The short version: with solid credit and full documentation, a conventional loan is usually cheaper and faster. If you’re short on collateral or credit history, an SBA loan may be easier to qualify for. Not sure which fits? Call a loan expert at 800-676-7020.

Documentation generally includes:

• Three years of personal and business tax returns
• Personal financial statement (we provide the form)
• Year-to-date income statement and balance sheet
• Purchase agreement, if you’re buying
• Last three consecutive months of bank statements
• Most recent loan statement, if you’re refinancing
• Articles of incorporation for the borrowing entity
• IRS Form 4506, which lets the lender verify your tax returns (we provide it)

Construction loans also need:

• Contractor resume
• Complete breakdown of construction costs
• Copies of plans, specs and permits