How to Finance a Commercial Property Without Worrying About Liquidity

Investors of all kinds increasing need to keep up to date on how to finance a commercial property via the diverse funding options available in 2023. Besides traditional banking loans, online platforms now offer financing quickly and cost-effectively.

The United States has 2,432,860 commercial real estate businesses. To avoid becoming one of the many that could fail in 2023, knowing how to finance a commercial property in today’s tough lending market is crucial.

In truth, commercial property is a tempting yet financially daunting investment. Financing can be a big challenge that keeps interested buyers away from profitable deals. If you’re one of them, you may have come up against some big challenges, including the following:

  • You found a profitable commercial property investment but don't have all the time in the world to wait for financing approval.
  • You fall short of tough credit score demands from traditional financial institutions
  • You’re unsure which loan type works best for your commercial property investment.

Nowadays, some traditional commercial investment loans are available under certain criteria and payment conditions. However, new online funding methods have emerged which don’t hold such tough lending restrictions and allow investors to get funds quickly and cost-effectively.

This article lists the most popular loan options in 2023 and will help you decide how to finance commercial property if you’re an investor.

We’ll cover the following:

  • What is commercial property financing?
  • How to finance a commercial property loan: Loan types
  1. U.S. Small Business Administration (SBA) loans
  2. Debt Service Coverage Ratio (DSCR)
  3. Conventional commercial mortgage loan
  4. Bridge loans for commercial real estate
  5. Hard money commercial real estate loans
  6. Online lenders

[If you are looking for reliable funding for a commercial property investment, Duckfund provides soft deposit loans in less than 24 hours with lower interest rates than traditional loans.]

how to finance a commercial property

What is commercial property financing?

Commercial property, often known as commercial real estate (CRE), is a property built on land used for business purposes. CRE includes business buildings such as warehouses, offices, and stores.

Commercial property investments provide a steady stream of passive income through various cash flows such as rental payments, tax benefits, parking, and other service fees. As such, investors or business owners typically seek to expand their commercial property investment by building, purchasing, rehabilitating, or refinancing commercial, industrial, and non-owner-occupied properties.

Yet, property entrepreneurs must also find the best solution to secure the necessary funds. Typically, when researching how to finance a commercial property, CRE loans present a viable solution as they offer a certain degree of flexibility.

Many lenders provide these kinds of loans, however, they’re not always the right choice for your investment. Generally, the lender will use the property as loan collateral so that if you, as the borrower, default on the loan, the lender can sell the property and recuperate some of their losses.

how to finance a commercial property

Commercial real estate loans: rates, fees, and terminology

Interest rates are probably the most crucial factor when figuring out how to finance a commercial property. Usually, they are higher in commercial than residential loans and depend on several criteria, such as the loan term, the amortization time, the investor’s creditworthiness, and the loan type.

According to Forbes Financial Advisor, commercial real estate loans are often a bit more expensive than residential mortgage loans because their repayment term is often shorter.

Investors seeking to finance their commercial properties need a working knowledge of loan-related terminologies, and the following are the most fundamental:

The loan-to-value ratio (LTV)

The loan-to-value ratio (LTV) is the loan amount ratio to the asset’s total value.

Net operating income (NOI)

Gross rental income minus running expenses equals net operating income (NOI). It’s a metric used to quantify the commercial property’s economic value.

Capitalization rate (cap rate)

The capitalization rate (cap rate) is used as a comparison metric to compare a commercial property to similar properties in the market. The cap rate is expressed as a percentage resulting from dividing NOI by the market value of the commercial property. For example, a property worth $5 million generating $250,000 of NOI would have a cap rate of 5%.

How to finance a commercial property: loan types

Commercial real estate loans have different requirements and rates. Here are the most common commercial property financing options:

U.S. Small Business Administration (SBA) loans

SBA 7(a) loans and SBA 504 loans are commercial real estate financing options that the United States Small Business Administration (SBA) provides. As well as providing lending products, the SBA also backs up investors by offering guarantees to lending institutions, which facilitates the loan process for many traditional loans.

SBA 7(a)Loan

The 7(a)Loan is the most popular form of Small Business Administration loan because of the wide variety of ways investors can use the money, including the purchase of land and buildings, renovation, and starting the construction of brand-new buildings.

The combination of low-interest rates and long lending terms makes it an attractive option for financing commercial investment property. According to Forbes Financial Advisor, you can acquire up to $5 million from an SBA-affiliated lender with terms extending to 25 years at fixed interest rates (9.75-12.75%) or variable rates (7-9.5%).

  • Highly competitive interest rates
  • Long-term loans for up to 25 years
  • Fully amortized without any balloon payments
  • Collateral is typically necessary
  • There is a great deal of paperwork involved
  • A lengthy period of approval
  • A solid credit history is necessary

SBA 504 Loan

The 504 Loan program provides financing for owner-occupied real estate. It works by bringing together three funding sources: a commercial lender provides 50% of the loan amount, a certified development company (CDC) provides 40% (CDCs are nonprofit businesses that work with the SBA to encourage economic development within their communities), and the investor has to provide 10% (the down payment).

  • The interest rate is low
  • The loan term could go up to 25 years
  • Low down payment
  • Lengthy funding and approval process
  • Lots of qualifying criteria, such as a strong business plan and management expertise

Debt Service Coverage Ratio (DSCR)

The Debt Service Coverage Ratio (DSCR) method of financing commercial property helps real estate investors get loans without submitting proof of income, tax returns, or employment details.

A borrower’s ability to repay the loan is measured by the debt service coverage ratio (DSCR), which is the operating cash flow ratio to interest and principal payments. Lenders will only consider approving a loan application from borrowers with a DSCR equal to or higher than one. It suggests that they can afford their monthly payments. The bigger the percentage is relative to one, the better for the borrower.


  • Maximum loan amount of $3.5 million
  • Loans with as little as a 20% down payment
  • No tax returns or proof of work are needed
  • Great for those who are self-employed or have complex incomes


  • It’s only appropriate for investment property
  • Having a high credit score may be required by lending institutions

Conventional commercial mortgage loan

The most common method of commercial property financing is a conventional commercial mortgage or a term loan, and banks are the typical provider of this loan. This loan is suitable for purchasing investment properties, including office buildings, retail malls, shopping centers, and industrial warehouses.

Banks often offer amortizing loans for up to 20 years at loan-to-value ratios of up to 80%. However, conventional commercial mortgage loans have more stringent standards, such as a minimum number of years in business, proven yearly revenues, and creditworthiness, making them more difficult to get.

Banks also offer balloon loans, a variant of traditional commercial real estate loans. Terms are shorter, averaging 3-7 years, and the amortization time could sometimes go up to 30 years. Small businesses anticipating growth until the loan is repaid may benefit from this type of loan because the monthly payments are lower than they would normally be with other loan types.


  • Reasonable interest rates
  • Borrowing is over a longer timespan


  • The requirements are stringent, making it difficult to acquire
  • It requires a lot of paperwork
  • The processing and application are slow
  • It requires a solid and even stellar credit history

Bridge loans for commercial real estate

A bridge loan is a short-term loan that provides liquidity while the borrower searches for permanent funding. For example, while waiting for the sale of another investment property (or some other source of capital infusion) to take effect, investors can use this loan to help purchase a commercial property.

Due to its nature, a bridge loan has a maturity date and must be repaid in full within six months to three years. Although it’s a fast way to get money, the interest rates are greater than those on longer-term loans.

Additionally, it can be difficult to qualify for such loans because the shorter terms raise the level of risk in the eyes of lenders, so they ask for an excellent credit score, and the debt-to-income ratio must be low. Further, there could be a downpayment of 20%.


  • Provide a lump sum of money
  • Highly flexible
  • Offer help for closing property deals
  • The majority of bridge loans are non-recourse in nature, meaning you’re not personally liable, but a lender could still seize the property in case of default.


  • High-interest rates
  • Fees for late payments are very high

Hard money commercial real estate loans

Bridge and hard money loans are quite similar in offering quick access to capital but for much shorter periods, often between six months and four years. However, the primary distinction is that non-traditional lenders provide hard money loans.

These are private investors and businesses who place considerably more emphasis on the value of the commercial property being used as collateral than on traditional financial indicators like credit scores.

Qualifying for a hard money commercial real estate loan is quicker and simpler. However, the high-interest rates and interest-only payments are a price to pay for its accessibility.


  • The process of getting the loan is quick compared to other loans
  • There is little emphasis placed on the borrower’s DSCR or credit score
  • The value of the business property is the primary consideration


  • Higher interest rate
  • Higher down payments
  • It involves a level of risk since the property will be the collateral

Online lenders

Online or fintech lenders are one of the newest trends in the commercial property market.

They offer a faster and less stringent underwriting process because they ignore the financial factors limiting the borrower's eligibility for loans, such as credit scores and years of business experience, which can be a major hurdle for investors trying to secure a traditional real estate loan.

Online lenders have improved the financing procedure by making it possible to apply for a loan whenever it is most convenient for you: 24 hours a day, seven days a week. Furthermore, the duration of the process is normally less than 24 hours.

Duckfund is one of the growing online lenders providing quick funding alternatives. We have created a new soft deposit loan program specifically to fund commercial real estate.

What is a soft deposit, and how does it work?

Duckfund provides soft deposit loans with a low commission of 2%. Investors can apply for it anytime, it won’t take more than two minutes to complete the application process, and due diligence takes just 24 hours.

Applying for a Duckfund soft deposit is simple. Following the approval of an investor’s application, Duckfund establishes an LLC and a call option contract with the purchase of a membership share. The LLC signs the real estate purchase and sale contract, and the deposit is wired to an escrow account. If the buyer chooses to proceed with the transaction, they will send the deposit payment to Duckfund in exchange for a 100% ownership interest in the LLC.

The purchase and selling agreement will then be in the buyer’s hands after that. The purchase and sale deal is annulled, and the deposit money is returned to Duckfund if the buyer decides to back out.

With the help of online lending platforms like Duckfund, getting the right funds for a commercial property investment isn't a complex process anymore. With the lending market seeming to get tougher rather than easier, it’s music to the ears of investors looking to finance that dream commercial property deal.

[Want to make sure you never miss out on a hot property deal again? Sign up to Duckfund to get affordable soft deposit financing for your commercial property investment with higher approval potential, lower interest rates, and easy applications.]


  • The primary loan types for traditional commercial real estate are term loans, SBA loans, DSCR loans, bridge loans, and hard money loans.
  • In the age of modern technology, new loan forms have emerged, including online platforms offering loans that are simpler to qualify for and quicker to process.
  • Qualifying for a traditional loan can be exceedingly challenging for many investors, especially small enterprises and new investors.
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