What Commercial Lending Encompasses
Commercial real estate lending covers a broad spectrum of property types and loan structures. In 2026, the commercial lending market includes more product variety than ever, reflecting the continued evolution of debt fund lending, the growth of alternative commercial lenders, and ongoing changes in how traditional banks approach commercial real estate.
This guide covers all major commercial loan types, the underwriting criteria each uses, the timelines involved, and the documentation required. It is designed for borrowers who are either entering commercial real estate lending for the first time or who want to understand the full landscape of options available in today's market.
Commercial Loan Types: A Complete Overview
Permanent Commercial Mortgages
Traditional permanent commercial mortgages are the workhorses of commercial real estate finance. Available from banks, insurance companies, credit unions, and agency lenders (Fannie Mae and Freddie Mac for multifamily), they provide long-term fixed or floating rate financing for stabilized, income-producing commercial properties.
Key characteristics: loan terms of 5-10 years (with amortization of 20-30 years), DSCR requirements of 1.20-1.25x minimum, LTV limits of 65-80% depending on property type, and recourse or non-recourse structures depending on deal quality and lender type. Bank commercial mortgages typically require recourse; insurance company and agency loans often provide non-recourse for qualifying assets.
Bridge Loans
Commercial bridge loans fill the gap between acquisition or transitional property needs and the permanent financing that will follow stabilization. Terms range from 12 to 36 months. Bridge rates run higher than permanent rates, reflecting the additional risk of a property that is not yet producing stable income. Exit strategy clarity is non-negotiable — lenders want to understand specifically how and when the bridge will be replaced.
Construction Loans
Ground-up commercial construction requires specialized financing. Construction loans disburse in draws as construction progresses, with an inspector verifying work completion before each draw. Most construction loans are interest-only during the construction period, converting to a mini-perm or permanent loan at completion. Lender requirements are strict: detailed construction plans and specifications, fixed-price contractor agreements where possible, experienced developer/contractor teams, and a credible permanent financing plan.
CMBS Loans
Commercial Mortgage-Backed Securities loans offer competitive fixed rates and non-recourse structures for qualifying stabilized commercial assets. Typical minimum loan size is $2-3 million, with the best pricing and terms available for assets $10 million and above. CMBS loans are sold into securitization trusts, creating the bureaucratic servicing structure and the strict prepayment provisions (defeasance or yield maintenance) that define this product type.
Debt Fund Lending
Private debt funds have become a major force in commercial real estate lending since 2010, filling gaps left by reduced bank lending capacity. Debt funds typically offer more flexible underwriting than banks, faster closing, and willingness to lend on transitional and value-add assets. Rates are higher to compensate for flexibility and risk, but for deals that don't fit bank boxes, debt fund lending often provides the only available path.
SBA Commercial Loans
SBA 504 loans for owner-occupied commercial real estate offer exceptional terms: 10% borrower down payment, long fixed-rate periods on the CDC portion, and loan amounts up to $5.5 million (higher in some cases). The trade-offs include longer processing timelines (90-120+ days) and the requirement that the borrower owner-occupy 51% or more of the property.
Commercial Underwriting in 2026
The core of commercial underwriting remains the relationship between the property's net operating income (NOI) and its debt service. Lenders calculate NOI from the property's rent roll, subtract vacancy and credit loss assumptions, subtract operating expenses (taxes, insurance, maintenance, management), and divide by the annual debt service to determine DSCR.
Lenders also apply LTV limits based on a third-party appraisal, which uses income approach, sales comparison, and cost approach methodologies to determine value. For income properties, the income approach (capitalization of NOI) typically carries the most weight.
In 2026, underwriting standards also reflect elevated attention to interest rate risk. After the rate increases of 2022-2023, lenders stress-test floating-rate loans against higher rate scenarios. Borrowers pursuing floating-rate commercial financing should understand how their deal performs if rates move against them.
The Commercial Loan Process Step by Step
- Pre-qualification: Share basic deal parameters with potential lenders to gauge interest and get preliminary terms indications before investing in full due diligence
- Term sheet negotiation: Review and negotiate the lender's term sheet before proceeding. Key negotiating points include rate, LTV, DSCR floor, recourse, and prepayment structure
- Application and due diligence: Submit full application documentation. Lender orders third-party reports (appraisal, Phase I environmental, property condition report)
- Underwriting: Lender's team analyzes the deal, property, market, and borrower. Expect requests for additional information during this phase
- Commitment: Lender issues a commitment letter if the deal meets their criteria. Review carefully — the commitment contains all final loan terms
- Closing preparation: Lender's counsel prepares loan documents. Borrower's counsel reviews. Title and insurance coordination
- Closing: Execution of loan documents, disbursement of funds
For a deeper look at commercial loan structures, see the commercial lending overview. For specific bridge loan guidance, the investment capital page covers bridge financing in detail. The how commercial loans work post covers the process, terms, and requirements in depth.