Commercial Real Estate Financing in 2026: Loan Types, DSCR and LTV

Commercial real estate financing is a loan secured by income-producing or business-use property, such as an office, warehouse, retail building or apartment complex with five or more units. Lenders decide how much to lend mainly from the property’s net operating income and value, not just your personal income, so understanding DSCR and LTV is the key to qualifying and to getting a better deal.

This guide is for small-business owners buying their own building and for smaller investors buying rental or mixed-use property. It covers the main loan types, how lenders size a loan (with a worked example), today’s rate environment, the risks to manage and how to strengthen an application.

Main types of commercial real estate loans

Bank and credit union loans

Community and regional banks are the most common lenders for smaller deals. A typical loan has a 5- to 10-year term with payments based on a 20- to 25-year amortization, which means a large balloon balance is due at maturity and must be refinanced or paid off. Banks usually require a personal guarantee (full recourse), and many offer fixed rates for the first five years with a reset afterward.

SBA 504 loans

The 504 program is designed for businesses that will occupy the property. The usual structure is 50% from a bank in first position, 40% from a Certified Development Company (CDC) backed by an SBA debenture, and 10% from you. Startups or special-purpose properties may need 15% to 20% down. The CDC portion carries a long-term fixed rate tied to the 10-year Treasury, with terms of 10, 20 or 25 years. You generally must occupy at least 51% of an existing building or 60% of new construction.

SBA 7(a) loans

The 7(a) program can also finance owner-occupied real estate with terms up to 25 years and loans up to $5 million. It’s often used when a purchase bundles property with equipment, working capital or a business acquisition. Rates are usually variable and capped by the SBA at Prime + 3% for loans over $350,000. See our SBA loans guide for details.

CMBS (conduit) loans

Commercial mortgage-backed securities loans are pooled and sold to bond investors. They typically offer fixed rates for 5, 7 or 10 years, long amortization or interest-only periods, and non-recourse terms (except for “bad boy” carve-outs such as fraud). The trade-offs are rigid servicing, minimum loan sizes that often start in the low millions, and costly prepayment through defeasance or yield maintenance.

Bridge loans

Bridge loans are short-term (often one to three years), usually floating-rate and interest-only. Investors use them to buy, renovate or lease up a property before refinancing into permanent debt. They close fast but cost more, and the main risk is that the permanent loan isn’t available on the terms you planned when the bridge matures.

How lenders size a CRE loan: DSCR and LTV

Loan-to-value (LTV) is the loan amount divided by the property’s appraised value. A $750,000 loan on a $1 million property is 75% LTV. Lower LTV means more equity cushion for the lender.

Debt service coverage ratio (DSCR) is the property’s annual net operating income (NOI) divided by annual loan payments. NOI is rental or business income minus operating expenses such as taxes, insurance, maintenance and management, but before loan payments and depreciation. A DSCR of 1.25x means the property earns $1.25 for every $1 of debt payments.

Lenders apply both tests and lend the lower of the two results.

Worked example

Suppose you’re buying a small warehouse for $1,500,000 that produces $120,000 of NOI (an 8% cap rate). The lender’s limits are 75% LTV and 1.25x DSCR, with a 7.25% rate and 25-year amortization.

• LTV test: 75% × $1,500,000 = $1,125,000 loan.
• Payment on $1,125,000 at 7.25% over 25 years: $8,131.58 a month, or $97,578.93 a year.
• DSCR check: $120,000 ÷ $97,578.93 = 1.23x, just under the 1.25x minimum.
• DSCR-sized loan: maximum debt service is $120,000 ÷ 1.25 = $96,000 a year. At the same rate and amortization, that supports a loan of about $1,106,796, or 73.8% LTV.

In this case, DSCR, not LTV, limits the loan, so you’d need about $393,204 in equity instead of $375,000 (before closing costs). Try your own numbers with our loan calculator or mortgage calculator.

Tip: When rates rise, DSCR usually becomes the binding constraint. If a lender’s DSCR test cuts your loan, ask about a longer amortization, a partial interest-only period or a lower rate in exchange for a larger down payment, and recheck the math each way.

Current rate context (late 2026)

Commercial lenders usually price fixed-rate loans as a spread over the 10-year Treasury yield (or a comparable swap rate) and floating-rate loans as a spread over prime or SOFR. As of late October 2026:

• The Federal Reserve held its target range at 3.75% to 4.00% on Oct. 28, 2026, and the prime rate is 7.00%. Read our take on the October Fed decision.
• The 10-year Treasury yield was 4.98% on Oct. 29, 2026 (Federal Reserve data via FRED). That means a lender adding a 2-percentage-point spread would quote about 7% before fees.
• SBA 7(a) variable maximums run from 10% (loans over $350,000) to 13.5% (loans of $50,000 or less) with prime at 7.00%.

Spreads vary with property type, leverage, sponsor strength and lender appetite, so get several quotes.

Risks to manage

• Refinance (balloon) risk. Most CRE loans mature before they’re paid off. If rates are higher or values lower at maturity, you may need to add cash to refinance.
• Interest-rate risk. Floating-rate and bridge borrowers see payments rise with rates. Rate caps or swaps can limit this, at a cost.
• Vacancy and tenant risk. A single-tenant building can go from full to empty overnight. Lenders look closely at lease terms and tenant credit.
• Property-type risk. Distress is concentrated. The Mortgage Bankers Association reported Q1 2026 delinquency rates of 5.21% for CMBS loans, 1.47% for life-company loans and 0.97% for GSE (Fannie Mae and Freddie Mac) multifamily loans.
• Personal guarantees. With recourse loans, your personal assets are on the line. Know what you’re signing, and see what happens if you can’t repay.
• Prepayment penalties. Step-down penalties, yield maintenance and defeasance can make an early sale or refinance expensive.

How to qualify for commercial real estate financing

1. Know your numbers. Prepare a rent roll, trailing 12-month operating statement and pro forma for investment property, or two to three years of business financial statements and tax returns for owner-occupied property.
2. Strengthen your credit. Many lenders want personal credit in the high 600s or better from guarantors. Our guide on improving your credit score can help.
3. Show liquidity and net worth. Lenders often expect cash reserves after closing and a net worth at least equal to the loan amount for larger deals.
4. Bring experience. A track record managing similar properties, or a professional property manager, helps.
5. Budget for closing costs. Appraisals, environmental reports, surveys, legal fees and origination fees add up, often well beyond what residential buyers pay.
6. Compare lender types. Banks, credit unions, SBA lenders, CMBS conduits and debt funds price risk differently. A mortgage broker can help on larger deals.

If you’re new to property investing, start with our overview of real estate investing. For non-real-estate needs, our commercial loans guide covers term loans and lines of credit.

Updated November 11, 2026: sources refreshed with provider and official data.

Sources: Federal Reserve Bank of St. Louis FRED, 10-year Treasury constant maturity (Oct. 29, 2026); Federal Reserve FOMC statement (Oct. 28, 2026) and H.15 bank prime loan rate (7.00%); Mortgage Bankers Association commercial delinquency report (April 27, 2026); U.S. Small Business Administration 7(a) terms, conditions and eligibility page (maximum interest rates, loan size and maturity, checked Nov. 11, 2026) and 504 loan program page (2026). Calculations by FinInfoBlog. This article is for educational purposes and isn’t financial or legal advice.

Written by Chanchala

Founder & Lead Writer · B.Sc. Mathematics (Honors) · 9 years in banking & lending

Chanchala is the founder and lead writer of FinInfoBlog. She holds a B.Sc. in Mathematics (Honors) and has 9 years of experience in banking and lending. She writes plain-English guides on savings, CDs, loans, credit and personal finance for U.S. readers, and makes sure every example shows the math behind the money decision. How we research and fact-check.