Listen to industry experts and the commercial real estate (CRE) market appears to be a vault of potential as we head into 2025, with growth predicted across various sectors. 

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Yet if you’re an investor or developer, you may find the keys to this vault are out of reach thanks to:

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• Stubbornly high interest rates that push up the cost of borrowing and make traditional financing options less appealing.
  
  
• Tightened liquidity as lenders impose stricter requirements, leaving you struggling to secure funding for new projects or property improvements.
  
  
• Unpredictable market conditions as fluctuating property values and economic uncertainty have increased the risks of traditional commercial real estate loans.
  
  

However, inventive new ways of CRE financing are emerging that may just help you unlock this potential, with a CELOC being one of them.

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Standing for commercial real estate equity line of credit, it offers commercial property buyers the financial flexibility they need to snap up hot real estate. 

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Dynamic and adaptable, a CELOC and other equity lines of credit may just be the financial move you need to make the next serious step in building your investment property portfolio. 

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Read on to find out how these innovative lending solutions work, and which is the best option to go for.

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Contents:

1. What is a commercial real estate equity line of credit?
2. How does a commercial property equity line of credit work in real estate?
3. Can you pull equity out of a commercial property?
4. Secure commercial property funding fast with Duckfund’s flexible financing

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Want to see how flexible financing can grow your portfolio? Find out how fast and simple equity funding can help you secure the commercial property you’ve got your eyes on.

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What is a commercial real estate equity line of credit?

A Commercial Real Estate Equity Line of Credit (CELOC) is a revolving credit line secured by the equity in your commercial property. 

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A CELOC lets you access funds when you need them (up to a set credit limit), unlike a loan which gives you a lump sum upfront. 

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Real estate investors love CELOCs because they’re more flexible: they let them quickly tap into funds when it suits them (without tedious form-filling) so that they can pounce on buying and renovation opportunities when they arise. 

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A similar product is a home equity line of credit (HELOC) which opens up lending for homeowners without resorting to expensive credit cards or tight budgeting.

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How does a CELOC compare to other types of CRE business financing?

Many property business owners find traditional types of loan difficult to work with, as they tend to come with higher interest rates and fees.

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Here are some examples.

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Commercial real estate equity loans

With a commercial real estate equity loan, you get an agreed lump sum based on your property’s equity. 

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This option works well for one-time expenses, but it also comes with:

• Commercial real estate equity loan rates that are higher than those for credit lines
• Higher interest payments because you pay based on the full loan amount, even if you don’t need all of it
• A lengthy application and approval process
• Strict repayment terms, with penalties if you miss monthly payments (or pay back early)
• The possibility of only borrowing the funds once.

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If you’re asking yourself “Does a commercial real estate loan build equity?” you may be disappointed. 

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A real estate loan helps you buy property, but it doesn’t build equity directly. Commercial real estate private equity grows as the property value increases or as you pay down the loan.

Commercial mortgages

Much like business loans, a traditional commercial mortgage often involves higher upfront costs and stricter repayment terms.

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However, it differs from a loan in that it comes secured by the property itself, so if you fall into trouble, you risk losing the real estate in question. 

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Small business loans

Some lenders, like the Small Business Assocation (SBA) provide loans for property purchases or renovation. 

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However, they apply strict lending criteria which demands a high credit rating and a strong business plan before granting approval.

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Start-up accelerator Founderjar found that over half of SBA applications get turned down, with loans in urban areas particularly hard to get.

The SBA’s low acceptance rates

                                          Source: FounderJar

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A CELOC, on the other hand, differs from these options. It functions more like a business line of credit, giving you greater control over your financing, and is more cost-effective with lower interest rates that you only pay on what you borrow.

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When used well, the smart use of a CELOC may even turn out to be a sensible commercial real estate investment strategy, as you land properties before rivals even get the chance to think.

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How does a commercial property equity line of credit work in real estate?

A CELOC doesn’t take long to access, providing you successfully meet the requirements the lender needs. 

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Borrowers must follow these steps to make it happen:

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1. Application

While not as tedious as most loan applications, most commercial property equity line of credit lenders will still need to review your credit score, financial statements (like tax returns), and the amount of equity in the property. 

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The more equity you have, the higher your chances of approval, while lenders will also assess the property's current value and your ability to repay.

2. Approval

Once you’ve submitted your application, the lender will evaluate your loan-to-value (LTV) ratio, which compares the l commercial equity loan amount to the property’s value. 

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Lenders also look at your business’s financial health, including cash flow, to determine the ratio.

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The lower the LTV ratio, the more favourable the loan terms are likely to be, but be warned: some CELOC lenders are still picky about who they lend to, especially with people who have a poor credit history.

3. Usage 

Once approved, the commercial property line of credit lets you draw down funds whenever you need them.

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You can borrow funds for business needs, such as renovations, working capital, or other investment opportunities. 

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This saves you commiting to a lump sum loan and all the obligations that come with it.

4. Repayment

Repayment terms vary, but most CELOCs offer interest-only periods, meaning you pay interest only on the borrowed amount.

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Afterward, you’ll begin making principal and interest payments. The length of the loan and repayment terms will depend on the agreement with your lender.

Like with any type of loan, it’s worth looking at several lending options before making your decision. 

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Alternative lenders that break the mold of traditional financing with high approval rates and flexible repayment terms are increasingly popular among real estate investing professionals.

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Can you pull equity out of a commercial property?

The short answer is “Yes, you can”, but some ways of doing it are better than others.

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Let’s say you want to renovate multifamily commercial real estate you own, but you’re waiting for a promising new investment opportunity to come along, so you want to keep your capital intact.

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Remortgaging property is one way, but this can be expensive. It involves reworking your existing loan terms, probably increasing your debt load, and incurring extra costs along the way.

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A CELOC is an indirect, unsecured way of using this equity, without actually taking it out of the property. 

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You get a credit limit approved based on your property’s market value and can draw the amount you need for the renovations as your project progresses. 

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You also save on the cost and hassle of a property refinance, and keep your capital free for other projects. 

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“When investors need to access equity to make repairs, or multifamily property owners need additional funds to pay bills, these are the typical solutions that they turn to”, says Jarred Kessler, CEO of equity specialists EasyKnock, speaking to Forbes.

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In this way, a CELOC keeps you agile and ready to act when new developments come along.

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The downsides of CELOC financing

A Commercial Real Estate Equity Line of Credit can be a handy way to get capital, but they do have some built-in downsides that are worth thinking about for investors and developers.

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Knowing these can help you figure out the smartest way to fund your property deals.

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It’s tied up in existing equity

One big thing with a CELOC is that it's tied to the money you've already got tied up in a commercial property. If you're just starting or don't want to put your current properties on the line, this can be a snag. 

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Using your existing equity for a CELOC might box you in and stop you from grabbing other opportunities or riding out any bumps in the market.

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It can slow your deal down

Getting a CELOC means getting your current property valued and approved based on its equity. This takes time, and in the fast-moving world of commercial real estate, that can mean missing out on hot deals. 

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If you need to move quickly to snap up a property, waiting for a CELOC to be set up against something you already own might leave you in the dust.

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Costs can pile up (and change)

CELOCs often come with more than just interest. You could be looking at appraisal fees, upfront charges, and even yearly fees, which can make it harder to predict the real cost. 

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Plus, interest rates can go up and down with the market and add to your expenses. This can make budgeting trickier compared to funding with simpler, more stable costs.

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You can only work on one deal at a time

How much you can borrow with a CELOC depends on the equity in one single property. This can hold you back if you're trying to fund several projects at once or grow your portfolio quickly. 

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A CELOC does let you borrow again after paying some back, but it's still limited by that one property's value, which might not be enough for bigger ambitions.

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Secure commercial property funding fast with Duckfund’s flexible financing

Great CRE properties get snapped up quickly in a competitive market, which is why Duckfund’s commercial real estate equity funding is designed to speed things up.

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Our deep well of equity, including a recent $100M injection from Clear Haven Capital Management, gives us the flexibility to provide you with rapid funding at competitive rates. 

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It also means you don’t need to dip into existing property equity like you would with a CELOC.

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Here are some numbers to show how you can swiftly secure a deal before someone else does.

• 2 minutes – fill out our digital form in the time it takes to fix your morning coffee
• 24 hours – Get the green light within a day with our sky-high approval rates 
• 48 hours  – Have the capital you need to lock down your deal in just two days
• 0 early payment penalties – Flexible terms that work for you, not against you
• Unlimited reborrowing – Draw down the funds again and again, there’s no limit on how often you can access our equity financing.

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Duckfund’s easy-access funding means you can invest in or develop multiple properties at once without tapping into your own funds or equity.

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You pay a simple flat fee instead of tying yourself up in high interest rates and confusing fees, and unlike with typical CELOC, no fee is charged for early repayment. 

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You also won’t have to worry about hidden charges that you might get with other types of financing. 

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Choose a faster, more flexible, and transparent path to hot CRE deals with Duckfund – your strategic advantage in a tough market.

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Ready to secure your next deal with Duckfund’s equity and debt financing? Take the next step in growing your real estate portfolio and contact us today.