A Guide to Commercial Real Estate Loans
Commercial real estate is underwritten on a different basis from residential investment property, and investors who arrive from the residential side are usually surprised by which parts matter.
Here is how these loans are assessed, what the numbers need to look like, and where files most often fail.
What counts as commercial here
In this context, commercial means income-producing investment property held by a business entity — multifamily above four units, mixed-use, retail, office, industrial and self-storage. It is business-purpose financing on non-owner-occupied property, made to an entity rather than to you personally.
It does not mean a loan to run your business. Equipment finance, working capital and business lines of credit are different products entirely, and they are not what the lenders we work with place.
The property is the borrower
The central difference: a commercial lender underwrites the income the building produces, not your salary.
Two figures carry most of the decision.
Net operating income. Gross rental income minus operating expenses — taxes, insurance, management, maintenance, utilities, reserves — before debt service. Note what is excluded: your loan payment, depreciation and capital expenditure. NOI is the property’s earning power independent of how it is financed.
Debt service coverage ratio. NOI divided by annual debt service. At 1.00 the property exactly covers its own payment with nothing spare, which no lender wants. Most commercial lenders look for meaningful headroom above that, and the required cushion rises with perceived risk in the asset class and the market.
The practical consequence is that a property with weak income will not be rescued by a strong personal balance sheet. Conversely, a strong property can carry a borrower whose tax returns would fail a residential test.
What else moves the decision
- The rent roll and lease terms. Not just what the tenants pay, but how long they are committed, when leases expire, and whether they expire all at once. Concentrated rollover risk is priced.
- Tenant quality. One tenant occupying most of the building is a different risk from twenty small ones, and lenders treat it that way.
- The asset class. Multifamily is generally the most financeable. Office is currently the hardest. Retail depends heavily on tenant mix and location.
- Your track record. Not your income — your experience operating this type of asset.
- The exit. Short-term commercial debt needs a credible takeout: a sale, a stabilised refinance, or a lease-up that changes the NOI.
Where files fail
Optimistic operating expenses. The most common single reason a file reprices or dies. Investors model expenses from the seller’s figures, the lender models them from market norms and reserves, and the resulting NOI is lower than the one in your spreadsheet — which drags the coverage ratio down and the required equity up. Underwrite expenses conservatively before you submit, not after the lender does it for you.
Pro-forma income presented as actual. Projected rents after your planned improvements are a legitimate part of the story, but they are not current NOI. Label them clearly. A lender who discovers the distinction on their own trusts the rest of the file less.
Deferred maintenance nobody mentioned. It surfaces in inspection and changes the capital requirement late, which is the worst time.
No exit date. An intention to refinance eventually is not an exit.
What it costs
Commercial pricing varies more than any other program, because the assets vary more. Leverage commonly lands in the region of 65–75% of value, with terms depending heavily on asset class, tenancy and sponsor experience. Current market figures across every program we place, with sources, are on the rates page.
On short-term commercial debt, watch the same trap that catches investors on every other program: points move the real annualised cost more than the headline rate does, and a prepayment clause can cost more than the rate you negotiated. If your exit is a refinance, read our piece on what prepayment penalties actually cost before you sign.
Where we fit
Easy Lending USA is not a lender. We are a referral service that introduces investors to independent private lenders, and we are compensated by the lender when a transaction closes — not by you, and never in advance. The terms you are offered are set by whichever lender underwrites your file.
What we can tell you before you spend weeks on it is whether the file is in range and which lenders place this asset class. The commercial program page covers the structures available, and if you want a read on a specific property, send it over.