Commercial Real Estate Business Loans

A commercial real estate loan is a type of financing used to purchase, develop or renovate properties that serve a business purpose. Unlike residential home loans, these loans are designed for income-producing properties like office buildings, retail spaces, warehouses and mixed-use developments. The property typically serves as collateral.

Credit union commercial real estate loans follow a similar structure to other commercial financing, but with a member-focused approach. You apply through your credit union, provide documentation about the property and your finances and go through underwriting. Once approved, you receive funding based on the property’s appraised value and your financial profile. 

At California Credit Union, loan amounts go up to $15 million with up to 15-year terms and up to 30-year amortization. Interest rates are also often more competitive than what you’d get at a traditional bank.

Down payment requirements for these loans are typically anywhere from 15% to 35% of the property’s purchase price. The exact amount depends on the property type, your creditworthiness and lender requirements.

Credit union commercial real estate loans can cover a wide range of property types. Here are some of the most common uses:

• Office buildings: Purchase or renovate a building for your business operations
• Retail centers: Finance storefronts, shopping centers or standalone retail locations
• Commercial and industrial sites: Acquire facilities for manufacturing, storage or distribution
• Multi-family units: Fund residential apartment buildings or multi-unit housing complexes

Some members also use a business line of credit alongside a commercial real estate loan to cover renovations or operating costs during the transition into a new space.

When you compare a bank vs. credit union, one of the biggest differences is structure. Credit unions are member-owned, which means profits go back to members through better rates and lower fees. Here are some of the benefits of a credit union for commercial real estate loans:

• Competitive rates: Credit unions often offer more competitive interest rates on commercial real estate loans compared to traditional banks
• Lower fees: Because credit unions aren’t driven by shareholder profits, they tend to charge fewer and lower fees throughout the loan process
• Local expertise: At California Credit Union, loans are processed by local underwriters who understand the California commercial real estate market
• Flexible terms: Many credit unions work with borrowers on repayment structures that fit their business needs, and you can set up automatic payments from a Business Checking account for added convenience

Qualification requirements vary by lender, but most credit unions evaluate a few standard factors. You’ll generally need to meet these requirements:

• Credit history: A good credit score shows lenders you have a reliable track record with debt. Most lenders review your FICO score as part of the evaluation
• Business financials: Lenders want to see stable revenue, positive cash flow and organized financial records
• Down payment: As mentioned above, expect to put down 15% to 35% of the property’s value
• Property appraisal: The commercial property must be professionally appraised to confirm its market value
• Debt-service coverage ratio (DSCR): Lenders usually require a ratio of 1.20x or higher for multifamily properties, and 1.30x or higher for other commercial property types. Special purpose properties may have a higher DSCR requirement

SBA 504 loans are partially backed by the U.S. Small Business Administration, which reduces lender risk and allows lower down payments. SBA loans are for small businesses looking to purchase or improve fixed assets like commercial property or heavy equipment. They involve a three-party structure: a traditional lender, a Certified Development Company (CDC) and the borrower.

Conventional commercial real estate loans are funded entirely by the lender without government backing. They usually come with higher down payment requirements, but they offer more flexibility in how the money can be used. The approval process is also typically faster since no government agency is involved.

Which option is right for you depends on your business size, financial profile and timeline. A credit union loan officer can help you compare both options.