A $1,200,000 mixed-use property with 25% down leaves a $900,000 loan. At 7.25% over 25 years, principal and interest runs about $6,554 per month. At 8.00%, that same loan is about $6,949 per month – a $395 monthly difference, or $23,700 over five years. That math is why understanding commercial real estate loan types matters before you write an LOI, not after you are under contract.
If you are buying an office condo in western Henrico, a warehouse near Richmond, or an income-producing property farther west where land, access, and lease structure all affect financing, the loan type can shape your cash needed, rate, reserves, term, and exit strategy. Some options are built for owner-users. Others fit investors better. Some have lower down payment potential but tighter occupancy rules. Others offer flexibility at the cost of higher pricing.
For borrowers around Goochland and the greater Richmond market, that distinction matters even more because local inventory spans everything from suburban professional space to larger-lot commercial properties with unique appraisal and access questions. Duane Buziak, NMLS #1110647, works as a broker, which matters here because commercial scenarios often benefit from wider loan placement than a single credit box can offer.
Table of Contents
- What commercial real estate financing actually covers
- The main commercial real estate loan types
- How the numbers change by loan type
- What local borrowers should watch in Virginia deals
- FAQ
- Legal disclaimer
What commercial real estate financing actually covers
Commercial real estate loans are used for properties intended to produce business income, house a business operation, or both. That includes office, retail, industrial, mixed-use, multifamily with five or more units, self-storage, and some special-use properties. It can also include land in some situations, though land financing is usually its own category with different risk treatment.
The biggest divide is owner-occupied versus investor. If your business will occupy at least 51% of the space, certain programs become available that may offer longer terms or lower down payment requirements. If the property is mainly leased to tenants, underwriting leans harder on cash flow, debt service coverage, lease quality, and reserves.
That is one reason commercial real estate loan types are not interchangeable. The same building can finance very differently depending on who occupies it, how stable the rents are, and whether the property needs improvements.
7 commercial real estate loan types to know
1. Conventional commercial mortgages
This is the broad bucket most people think of first. These loans are commonly used for stabilized office, retail, industrial, and mixed-use properties. Terms often look like 20 to 25 years amortized with a 3-, 5-, 7-, or 10-year fixed period, then a balloon or reset.
Typical down payments are often 20% to 30%, though it depends on property type, borrower strength, and occupancy. Credit expectations are usually stronger than on government-backed options. A 680+ score may be workable in many cases, while stronger pricing often shows up at 700 to 740 and above. Reserve requirements can run from 3 to 12 months of principal, interest, taxes, insurance, and association dues if applicable.
2. SBA 7(a) loans
SBA 7(a) financing can work well for owner-occupied commercial purchases, business acquisitions with real estate, and some refinance scenarios. It is flexible, which is its big advantage. It may also allow lower down payment structures than a standard commercial mortgage.
The trade-off is paperwork and business underwriting depth. The file is not just about the building. It is also about the operating company, tax returns, liquidity, and repayment ability. For business owners who want to preserve cash for equipment or working capital, this can still be one of the most practical paths.
3. SBA 504 loans
SBA 504 loans are designed for owner-user real estate and major fixed assets. They are often attractive when a business wants a lower equity injection and a long-term fixed component. A common structure is 50% from a first mortgage, 40% from a CDC-backed second, and 10% down from the borrower, though startups and special-use properties may require more.
For a medical office, warehouse, or business facility where the owner plans to stay put, 504 can be compelling. For investors buying pure income property, it is generally not the right fit.
4. Multifamily commercial loans
Once a property has five or more units, it is commercial rather than residential. These loans focus heavily on rent roll quality, operating history, vacancy, and debt service coverage ratio. A common DSCR target is 1.20 to 1.30, though stronger files can vary.
This category can include smaller apartment assets in the Richmond region or larger projects with agency-style execution. Borrowers often need 20% to 30% down, plus post-closing reserves. If the building has deferred maintenance or low in-place rents, financing terms may tighten.
5. DSCR and investor commercial loans
For investors who own property through an LLC or are focused on cash flow rather than personal income documentation, DSCR-style commercial execution can be useful. The property income carries more weight than W-2 wages. That can help self-employed investors or portfolio owners with complex tax returns.
The catch is that pricing is not always the lowest, and vacant or weakly leased properties can be harder to place. If the property barely covers debt service, leverage usually drops and reserve requirements rise.
6. Bridge loans
Bridge financing is short-term money used when speed or property condition makes permanent financing difficult today but realistic later. Think lease-up, renovation, tenant turnover, or a value-add strategy. Terms are shorter, rates are higher, and the exit matters from day one.
Bridge can make sense if you are buying a property below stabilized value and already know how you will refinance or sell. It is not ideal if your timeline is fuzzy or your liquidity is thin.
7. Construction and renovation commercial loans
If you are building from the ground up or doing major improvements, this is a different underwriting world. The broker and lender look at plans, budget, contingency, contractor strength, permits, and post-completion value. Draw schedules and interest carry matter just as much as rate.
Around exurban properties west of Richmond, site-specific issues like septic, well capacity, entrance approvals, and stormwater can affect both timing and cost. Those factors do not automatically kill a deal, but they do change how it should be structured.
How the numbers change by loan type
| Loan type | Best for | Typical down payment | Common term structure | Main trade-off |
|---|---|---|---|---|
| Conventional commercial | Stabilized office, retail, industrial, mixed-use | 20%-30% | 20-25 year amortization, shorter fixed period | Balloon or repricing risk |
| SBA 7(a) | Owner-occupied business real estate | Often 10%-15% | Up to 25 years in many cases | More documentation |
| SBA 504 | Owner-user purchases and fixed assets | Often 10% | Long-term fixed second plus first mortgage | Occupancy rules apply |
| Multifamily commercial | 5+ unit residential investment | 20%-30% | Varies by property and cash flow | DSCR and condition drive leverage |
| Bridge | Lease-up, rehab, time-sensitive acquisitions | Varies widely | 6-24 months commonly | Higher rate and fees |
Closing costs on commercial deals often land around 2% to 5% of the loan amount once you factor in lender-side fees, appraisal, environmental reports where needed, legal review, title, and recording. Ask about our no-out-of-pocket closing options where available, but assume commercial transactions require real cash planning.
What local borrowers should watch in Virginia deals
In Goochland County, property characteristics can complicate an otherwise clean commercial file. Larger parcels, shared drives, older improvements, septic systems, and mixed-use occupancy all create underwriting questions. That is true even when the property itself is strong.
Local values also matter. According to Zillow, the average Goochland County home value is about $497,000, which helps frame how quickly land and building costs can add up even before you move into true commercial pricing: https://www.zillow.com/home-values/20282/goochland-va/. While that figure is residential, it reflects the broader pricing pressure many buyers already feel west of Richmond.
For borrowers comparing owner-user and investment paths, government-backed guidance can also help explain how underwriting differs across programs. The https://www.consumerfinance.gov/ask-cfpb/what-is-a-mortgage-en-99/, https://www.fhfa.gov/, and https://www.fanniemae.com/ are useful reference points, even though commercial placement often falls outside standard conforming residential rules.
The practical question is not just, what rate can I get? It is, which structure fits my occupancy, cash reserves, timeline, and exit? A borrower buying a stabilized strip center should not use the same playbook as a business owner buying a warehouse for long-term occupancy.
FAQ
1. What is the most common commercial real estate loan type?
Conventional commercial mortgages are the most common for stabilized properties, especially office, retail, industrial, and mixed-use buildings.
2. Which commercial loan type usually needs the least down payment?
SBA 504 and some SBA 7(a) structures can require less down than conventional commercial loans, especially for owner-occupied properties.
3. Are rates higher on commercial real estate loans?
Usually yes. Commercial rates often run higher than residential rates because risk, property analysis, and repayment structures are different.
4. What credit score do I need for a commercial property loan?
Many scenarios start around 680, but stronger options and pricing often improve at 700 to 740 and above.
5. Can I buy a 5-unit property with residential financing?
No. Once the property has five or more units, it is generally treated as commercial real estate.
6. What is DSCR in commercial lending?
DSCR means debt service coverage ratio. It measures whether the property income is enough to cover the loan payment.
7. Are balloon payments common in commercial loans?
Yes. Many commercial mortgages amortize over 20 to 25 years but come due earlier, often after 3, 5, 7, or 10 years.
8. Is a bridge loan a good idea?
It can be, if you have a clear refinance or sale plan. It is riskier if your timeline, renovation budget, or lease-up strategy is uncertain.
Legal disclaimer
This article is for general educational purposes only and is not legal, tax, or financial advice. Loan approval, terms, rates, reserve requirements, occupancy rules, and property eligibility vary by borrower profile, credit, income, business performance, appraisal, and program guidelines. Commercial financing is highly scenario-specific. Verify current guidelines and consult appropriate legal, tax, and real estate professionals before making a purchase or financing decision.
The right commercial loan usually becomes obvious once the property, occupancy, cash flow, and timeline are all on the table together. If you are early in the process, that is the best time to sort through options before a good deal becomes an expensive scramble.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA & DC | [Contact] | NoTouch Credit Pull available — no hard inquiry, no credit hit.