Commercial Real Estate Loan Interest Rates: A Comparison Chart For the Small Business Owners

As a business owner seeking a commercial real estate loan, it may seem to you that there are a myriad of different kinds of loans, each with unique conditions. That’s because these loans are often intended for a variety of uses and borrowers, and only some of them have the flexibility to apply to most small business owners. To help you navigate the wide world of loans, here is a concise comparison of the most common types of loans available and a short description of each of them as a convenient guide.

Commercial Real Estate Loans Compared

Loan conditions can differ based on your credit rating, the credit rating of your business, the type of real estate or business you are financing, the size and term of the loan and the prime rate, for example. It also varies by lender and type of loan, as this chart shows:

Loan Type Loan-to-Value Interest rate Term
SBA 504 85-90% 4.63% 10-20 (25) years
SBA 7(a) 80-85% 6.75-9.25% 20-25 years
Conventional lender 70-80% 4-7% 5-10 years (until balloon payment)
Online 70-80% 8-12% 0.5-6 years
Finance company 70-75% 4.40-4.82% >25 years
Construction 60-80% 5.50-6.50% 1-1.5 years
Conduit (CMBS) 70-75% 4.30-5.20% >30 years
Hard money 50-55% 10-18% 0.5-3 years
USDA Business 60-80% 5.25-9.25% >30 years

SBA 504. This Small Business Administration (SBA) loan program partners with conventional lenders to provide business owners  with affordable financing to purchase real estate and equipment with a long service life. The 504 loan rate loosely follows Treasury issue rates and is consistently lower than market rates.

SBA 7(a). The SBA provides underwriting for conventional lenders to issue these loans of up to $5 million. SBA 7(a) rates are linked to market rates and may be fixed or variable.

Conventional lender. Commercial banks and credit unions are the most selective lenders and usually have balloon payments on their loans. Their rates may be fixed or variable. The rates the biggest clients receive from the biggest banks are closely tracked and compiled into the “prime” rate, which has a tremendous impact on the market overall.

Online. Online nonbank lenders offer less advantageous rates than conventional lenders, but they lend more readily and often provide funds more quickly. Their rates also follow the market rate.

Finance company. Finance companies may specialize in specific industries (hotels, storage units or franchises, for example) and show varying degrees of selectivity. Their rates can show a high degree of variation.

Construction. Construction loans are provided by banks. They provide short-term money for the construction project. Money is made available as needed, and interest is only charged on money that has been disbursed. Rates tend to be on the high end of the rate spread for conventional lenders.

Conduit. Otherwise known as commercial mortgage backed securities (CMBS). These loans are sold by the lender to investors as securities. They generally have very good rates, but they are only available to large borrowers.

Hard money. These are a short-term, high-priced loans usually provided by a private lender that are used as a stopgap (when they are referred to as “bridge” loans) or as a last resort. Rates on hard money loans start a few percent above the upper limit of the market rate.

USDA Business & Industry. These loans are guaranteed by the federal agency and available for use in “any area other than a city or town with a population of greater than 50,000 inhabitants.” Rates are negotiated individually and may include interest-only payments for the first few years.

A Closer Look at the SBA 504 Loan Program

The 504 loan is one of the most accessible and attractive sources of financing for a business owner. As the chart shows, it features a high loan-to-value ratio (meaning a low down payment), low interest and long terms. A 504 loan can be used to:

  • purchase land or buildings
  • construct buildings
  • purchase equipment with a service life of ten years or more
  • improve, upgrade or renovate buildings
  • refinance conventional debt

The 504 loan program partners a nonprofit Certified Development Company (CDC) like TMC Financing with a conventional lender to provide a loan in three parts:

  • The first is a loan from a conventional lender for at least 50% of the total amount. You and that lender determine the amount and conditions of that loan, which becomes your first mortgage. If you do not have a conventional lender already, TMC can help match you with the perfect banking partner for this loan.
  • Your CDC facilitates a separate SBA loan of 40% of the total, up to $5 million, at a fixed, below-market rate. You can receive up to $5.5 million for manufacturing projects or projects eligible for the SBA’s Green Energy Program. This will be your second mortgage.
  • Then you, the borrower, will contribute 10% to the loan as down payment. Certain types of facilities are classified as single-purpose properties by the SBA and require a 15% down payment.

The only documents required to prequalify for the SBA loan are:

  • Three years of personal and business tax returns
  • A personal financial statement
  • Interim financials

Prequalifying early for the loan can also speed up the application process considerably and gives you a good idea of how much you can expect to get.

You can find out more about the 504 loan program from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.


Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison