What Are Average Commercial Real Estate Loan Terms and Why It Matters

Buying commercial property is a huge milestone for any small business. For most business owners, it requires a serious commitment. That’s where commercial real estate loans come in. But while most people focus on the loan amount or interest rates, there's something equally important, loan terms.

The term of your loan doesn’t just affect when you finish paying it off. It also impacts your monthly payments, cash flow, and the total interest you’ll end up paying. For small businesses looking to buy office buildings, retail space, or even multifamily units, knowing how long you’ll be tied to the loan matters more than you think.

Let’s look at what commercial real estate loan terms really mean and why choosing the right one can shape your business’s financial future.

Understanding in Commercial Real Estate Loan Terms

A commercial real estate loan term refers to the length of time a borrower agrees to repay the lender. In commercial real estate, it can range from as little as one year to as much as 25 years, depending on the type of financing and the lender.

Commercial loans are very different from residential mortgages. A typical residential mortgage might have a 30-year term. But commercial real estate loans often come with short-term options, like 5 or 7 years, or longer-term ones with 20- to 25-year amortization periods.

It’s also common for commercial loans to include a balloon payment. That means smaller payments during the loan term, but a large lump sum is due at the end. So even if your loan has a 10-year term, the payments might be spread out as if you were paying over 25 years. That mismatch can create risk if you're not prepared to refinance or sell.

What Is the Common Commercial Real Estate Loan Term?

There’s no universal number, as loan structures vary based on the lender, the borrower's credit profile, and the property type involved. But generally speaking, most commercial real estate loan terms fall between 5 and 20 years, especially when working with conventional banks and credit unions.

These shorter terms may include balloon payments or require refinancing at the end, which makes it essential for borrowers to plan ahead. For longer-term stability, some borrowers turn to SBA-backed loans or insurance companies offering terms of up to 25 years.

Here are some examples:

• SBA 7(a) loans: Up to 25 years for real estate purchases.
• SBA 504 loans: Typically, 10 or 20 years, with fixed-rate terms.
• Conventional commercial mortgages: Often 5 to 10 years with balloon payments.
• Bridge loans: 1 to 3 years, used for short-term financing.

Commercial lenders like banks, credit unions, and insurance companies may offer longer, or shorter loan types based on the borrower's creditworthiness and business plan. The Small Business Administration (SBA) helps back many of these loans, making them more accessible to startups and growing businesses.

Why the Commercial real Estate Loan Term Matters

Let’s say your loan amount is $600,000 at a fixed rate of 6.5%. The term you choose will decide how much interest you pay and how high your monthly payments are.

• On a 10-year loan, you’ll pay more each month but finish faster.
• On a 25-year amortization, your monthly burden is lighter, but your total interest payments could be double.

Choosing the right commercial real estate loan term can help you preserve working capital, manage operating costs, and increase your debt service coverage ratio, key metric lenders look at during underwriting.

Business owners should also factor in prepayment penalties. Some lenders charge fees if you pay off the loan early or refinance too soon. That can affect your ability to adjust your financing down the road.

Comparing Short-Term vs. Long-Term Loan Terms

Choosing between short-term and long-term financing depends on your current financial situation and long-term business goals. Some businesses benefit from faster repayment, while others need flexibility and smaller payments during the early years.

Short-term commercial loans (1–10 years):

• Best for businesses with steady cash flow
• Higher monthly payments
• Lower total interest paid
• Often tied to a balloon payment or need to refinance

Long-term commercial loans (15–25 years):

• Lower monthly payments
• More interest over time
• Easier on cash flow
• Better for long-term property ownership

If your goal is to hold on to the property for a while, long term commercial real estate loans might give you more breathing room.

How to Choose the Right Term

Start by evaluating your business’s eligibility, financial history, and goals. Lenders will ask for tax returns, financial statements, and details about the property types involved such as retail units, office buildings, or owner-occupied spaces.

Then, consider your:

• Credit score and creditworthiness
• Loan-to-value (LTV) ratio
• Type of property and real estate investment strategy
• Timeline for repayment or refinancing

If you’re a startup or applying for construction loans, you may also need to prove how the project will generate income once completed. In such cases, some lenders may offer bridge loans or line of credit options.

Choosing the right loan also means understanding what lenders expect from borrowers. Every loan application goes through a process called underwriting, where the lender reviews your financial background. They’ll ask for tax returns, business financial statements, and assess your cash flow from operations or rental income. Your credit score, creditworthiness, and past business loans all matter here.

Lenders also look closely at the kind of property you're buying. Multifamily, industrial, and mixed-use buildings each carry different levels of risk. Commercial mortgage lenders like banks and financial institutions will consider the property type and its income potential when determining eligibility.

Additionally, most loans require a down payment ranging from 20% to 30%. However, SBA-backed loans often offer more flexibility with lower initial payments. If your business is in its early stages or needs financing for a new build, bridge loans or construction loans may be suitable. These loans can provide short-term funding until you can qualify for longer-term options.

When you’re finalizing your loan, think long term. A longer year of amortization might offer smaller monthly payments but could tie up your finances for a long time. A shorter term will get you out of debt quicker but increase monthly strain. Always factor in potential prepayment penalties and consider how refinancing might play into your future plans.

Real estate loan terms are more than numbers, they’re a reflection of your business goals. A solid strategy gives you flexibility, control, and the ability to grow without unexpected surprises.

Talk to experienced commercial lenders before making a decision. Compare commercial real estate loan terms and rates side by side. Consider the full picture and not just the monthly number.

Final Thoughts

Choosing between real estate term loans, SBA loans, or bridge financing isn’t easy. But when you understand your options, you can make better decisions for your future. A smart loan setup can help your business thrive, give you room to grow, and protect your bottom line.

Ready to invest in a property for your business? Talk to lenders, compare your loan options, and understand the full cost of commercial real estate financing terms before you commit.

FAQs About Commercial Real Estate Loan Term

How long is a typical commercial real estate loan term?

Most commercial real estate loan terms fall between 5 and 10 years, though SBA loans can go up to 25 years.

What’s the difference between a commercial real estate loan term and amortization period?

The commercial real estate loan term is the actual agreement length. The amortization period is how long the payments are spread out, sometimes longer than the term.

Can I refinance before the term ends?

Borrowers can choose to refinance their commercial real estate loan term, especially if their business grows. Just watch out for prepayment penalties.

Do commercial lenders look at credit scores?

Your credit score and financials affect your eligibility, interest rates, and loan-to-value ratio.

Frequent searches leading to this page