Average Commercial Real Estate Loan Rates for 2021

Average Commercial Real Estate Loan Rates for 2021

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The average interest rate on a commercial real estate loan is about 2.2% to 18%. The actual interest rate you secure depends on the type of loan you choose, your qualifications as a borrower, and the type of building or project you’re financing. To help you compare rates, we reviewed over a dozen types of loans and properties to compile the average interest rates for commercial mortgages.

Average commercial real estate loan rates by loan type

Depending on the type of loan you choose, interest rates could be as low as 2.231%. Government-backed loans such as SBA loans from the Small Business Administration or USDA loans from the Department of Agriculture and conventional commercial mortgages will generally offer the most competitive interest rates and the highest loan-to-value (LTV) ratios.

Loan
Average Rates
Avg. LTV Ratio
Typical Loan Size
Typical Max. Term
SBA 504 Loan2.231%-2.399%90%$5.5 million (max)25 years
SBA 7(a) Loan5.50%-11.25%85%$5 million (max)25 years
USDA Business & Industry Loan3.25%-6.25%80%$1 million+30 years
Traditional Bank Loan5%-7%80%$1 million10 years
Construction Loan4.75%-9.75%75%$3 million+36 months
Conduit (CMBS) Loan3.04%-4.60%75%$2 million+30 years
Insurance Loan (incl. Life)2.44%-5.41%75%$5 million+30 years
FHA Hospital/Senior Care Loan2.60%-3.45%83.30%$5 million+40 years
Fannie Mae Apartment Loan3.01%-4.37%80%$1 million+30 years
Freddie Mac Apartment Loan3.21%-3.55%80%$1 million+30 years
Bridge Loan4.20%-13.20%80%$1 million+36 months
Hard Money Loan10% - 18%60% - 80%$150,000+12 months
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The application process for a traditional commercial real estate loan requires a lot of time and documentation to complete, and prime or near-prime borrowers are most likely to qualify. If you have a lower credit score or less-than-stellar business finances, or the financed property needs renovation, you’ll pay higher interest rates and have to put more money down in order to get a conventional commercial real estate loan. In this situation, you should consider commercial mortgage companies that specialize in subprime lending or look for bridge or hard money loans.

Average commercial real estate loan rates for investment properties

Interest rates on investment property loans can be as low as 3.77%. An investment property loan would allow you to purchase a property to renovate and resell for a profit. However, the LTV ratios on these loans will be lower than owner-occupied commercial real estate loans, meaning that you’ll be required to put more money down. On average, the LTV ratio for these types of loans is between 66% and 73%. So, if you purchase a $1 million building, the lender may only give you a loan for $730K, meaning that you’ll have to put $270K down.

Building Type
Average Rate
Avg. LTV Ratio
Avg. Term
Avg. Amortization Period
Apartment complex3.77%73%20.5 years26 years
Office building3.87%68%8 years30 years
Retail building4.29%70%6.2 years25 years
Restaurant5.91%66%7.45 years23 years
Industrial building4.14%70%11.46 years25 years
Hotel or motel4.81%67%7.8 years23 years
Golf course6.52%67%9 years23 years
Health care/senior housing4.43%71%13.65 years26 years
RV, mobile home or camp ground5.04%70%9.15 years26 years
Self storage5.23%70%6.1 years28 years
Special purpose buildings6.26%66%7.85 years23 years
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Regional banks, credit unions, and commercial mortgage companies are the best options for obtaining an investment property loan. A FICO Score of at least 620 would increase your chances of being approved. To qualify, you’ll also need a proven track record of managing investment properties, a strong investment pitch and sufficient cash for a down payment. A substantial down payment could help you get the most favorable rates and terms. Be prepared to shop around to get the best deal and to negotiate the terms of the loan contract. We recommend borrowers consider local banks and mortgage lenders over national ones, as these institutions have a greater interest in investing in local communities.

Average commercial real estate loan rates for building an investment property

You’ll pay higher interest rates for building rather than purchasing an investment property — rates currently range from 6.74% to 8.15% — because constructing a new building is a riskier endeavor than purchasing a finished one, so banks charge higher interest rates to compensate for this risk. However, the LTV ratio on a construction loan is generally higher than a standard investment property loan so you won’t have to put as much cash down. Construction loans, sometimes referred to as "interim financing," also have shorter maturities than investment property loans since you’re expected to pay back the loan once the building is complete. Maturities for construction loans typically range from 18 to 26 months. Many construction loans are not amortized and thus require interest-only payments with a final balloon payment at the end of the term.

Building Type
Average Rate
Avg. LTV Ratio
Avg. Term
Apartment complex6.74%80%26 months
Office building7.05%83%18 months
Retail building7.19%80%18 months
Restaurant8.15%75%18 months
Industrial building7.19%80%18 months
Hotel or motel7.49%80%18 months
Golf course7.71%78%18 months
Health care/senior housing7.19%78%18 months
RV, mobile home or camp ground7.19%80%18 months
Self storage7.16%80%18 months
Special purpose buildings8.06%73%18 months
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What to consider when shopping for a commercial mortgage

When you’re shopping for a commercial mortgage, take the following steps to ensure you’re getting the right loan.

1. Shop around

Buying or building commercial property is a huge undertaking for your business or for yourself as an investor. Be prepared to shop around and negotiate to get the best deal possible. We recommend you start with financial institutions you have a good working relationship with. If you don't have a specific financial institution in mind, start with regional and local banks, credit unions and mortgage lenders since they'll know more about the local market than a national lender.

2. Consider government-backed loans

When it comes to choosing a type of loan, small business owners should consider a government-backed loan program — such as an SBA 504 loan or a USDA business loan. These loans are easier to qualify for than traditional commercial mortgages, while still carrying competitive interest rates. However, these programs are generally only available to borrowers purchasing or building owner-occupied properties. For investment property loans, a bank or commercial mortgage lender will be the best option. Borrowers whose qualifications are lacking — or who are purchasing properties that need renovation — should consider alternative options, such as a bridge loan or a hard money loan. Keep in mind that you may pay higher interest rates or make a larger down payment for these loans.

3. Read contracts carefully

When you have a loan offer, make sure to carefully read the contract. Some lenders will require personal guarantees for each owner of the business or require that you pay out of pocket for any building inspections or environmental reports. Contracts may also include certain clauses that could void the entire contract if they're violated. Understand all of the fine print of the contract to make sure you aren't taking on too much risk as a borrower. Lenders usually expect some back and forth on the offer, so you shouldn't be afraid to negotiate — especially if you have more than one offer. Review the contract with an attorney or legal advisor, who can help you better understand and negotiate the finer points of the contract.

Sources

Erica Gellerman is a CPA and received her MBA from Duke University. Her education, experience working in both financial services and small business consulting, and paying off $120,000 in student loans (ahead of schedule!) helps inform her writing now on topics related to both student loans and small businesses. As a freelance writer for the past five years in the personal finance and small business space, her work has been featured in publications like Forbes, Business Insider, and Money.