3 Steps to Finding the Right Commercial Mortgage

By: Zack North

It’s true. The world of small balance commercial lending is populated by a much wider variety of lenders than is the residential lending world. And with the variety of property types and business needs there can be a lot of program options, and finding the right commercial mortgage may seem like a challenge.


But it’s not as complex as you might think. So, if you’re new to commercial lending and looking for a lender that meets your needs, simply follow the advice here and save some serious time.


Here are three steps to help you quickly find the ideal lender and program for your situation.


Step 1: Identify your real needs

You may know what loan amount you’re looking for and have a specific time frame in mind, but have you actually listed your needs? Getting a firm handle on your situation can be a big help when trying to identify the ideal lender type.


You can start by answering the following questions:


Why do I need this loan? – You obviously know why you need a commercial mortgage, but being able to clearly communicate your need to prospective lenders can help them introduce the programs and options that make the most sense.


Do I want a long-term or short-term solution? – How long do you plan to own the property? Is this a flip or a long-term investment? Do you plan to sell within months, years, or decades?


Do I need to explain my credit history? – Do you have credit blemishes that need to be explained? Different lenders will have different credit requirements, so your credit history will play a large role in the type of lender you can work with and the type of loan you will eventually secure. Remember: a credit blemish won’t necessarily lead to an automatic “no” from a lender – especially if you’re working with a non-traditional alternative.


What is the story with my commercial property? – Does your property have a history that might cause more risk for a lender? Was it ever used for a purpose that might require environmental due diligence? Do you have photos? Has the property been repositioned through a capital improvement program that has created value? Being an expert on your property’s history can be a big help when communicating with lenders.


Step 2: Match your needs to the right lender type

Make the quick cut – use what you know about your specific needs and motivations to narrow the list of lender types. Do this step with care and you will quickly land in the right lender’s ballpark, where you’ll find programs that will match your objectives.


Here’s your list of major direct lender types and the attributes that will usually map to your need and story. Of course there are exceptions, but this will get you started.


Traditional Banks

Banks offer attractive rates, but their credit requirements and underwriting policies make it difficult for many borrowers to secure funding. Closings may await long reviews. Property types may be limited.


Bank loans are available for the purchase or refinance of commercial real estate, to obtain operating capital and funds for business expansion, and to provide financing of the purchase of inventory and equipment.



  • Lower interest rates
  • Multiple financing options
  • Convenience and accessibility to the lender


  • Cumbersome application process
  • Lengthy approval process
  • On-going reporting requirements
  • Tighter UW requirements
  • Credit committees


SBA Loans

The U.S. Small Business Administration (SBA) is a federal agency committed to furthering the growth and development of small businesses. One of the ways it does this is by guaranteeing loans to small businesses made through lending partners nationwide.


SBA loans include lower down payments and longer repayment terms than conventional bank loans, enabling small businesses to keep their cash flow for operational expenses and spend less on debt repayment.



  • Up to 90% financing
  • Terms up to 25 years
  • Fixed and variable rate options
  • No balloon payments
  • Most for-profit small businesses are eligible
  • Owner-occupied businesses or properties


  • Lengthy processing and approval timelines
  • Additional collateral may be required including inventory, receivable, equipment and equity in your personal residence
  • Higher closing costs
  • Investor transactions are not eligible


Agency Small Balance Multifamily Loan Programs

Fannie Mae provides small-balance apartment financing (5+ units) from $750,000 to $3,000,000 nationwide and up to $5,000,000 in certain markets. Their focus is workforce housing that provides affordable housing to families whose earnings are at or below 100% of the area median income. Eligible property types include conventional, rent-restricted, cooperatives, seniors, student housing, and manufactured housing communities.



  • Highly competitive pricing
  • LTV’s to 80%
  • Loans are non-recourse
  • Interest only – partial or full term
  • Fannie Mae supplemental mortgage loans or 3rd party subordinate debt allowed


  • Properties must demonstrate 90% occupancy for prior 90 days to be eligible
  • Liquidity and net worth requirements for borrowers
  • Longer to close
  • Higher closing costs
  • Multiple property inspections
  • Different underwriting guidelines and structure based on size of market


Freddie Mac provides small-balance mortgage funding for apartment loans throughout the nation. The lending platform includes large metropolitan areas, mid-market cities, and smaller communities. Eligible properties include conventional multifamily housing with five residential units or more, including conventional housing with tax abatements and Section 8 vouchers.



  • Highly competitive pricing
  • LTV’s to 80%
  • Loans are non-recourse
  • Interest only – partial or full term
  • Cash-out


  • Properties must demonstrate 90% occupancy for prior 90 days to be eligible (85% occupancy is acceptable if the property features certain characteristics)
  • Liquidity and net worth requirements
  • Longer to close
  • Higher closing costs
  • Multiple property inspections
  • Different underwriting guidelines and structure based on size of market
  • No supplemental financing available


Non-Bank Lenders

Non-bank lenders are financial institutions that extend credit or loans to consumers and businesses who do not qualify for financing from traditional lenders like banks. These lenders include marketplace lenders, and hard money lenders. They offer permanent, bridge, and working capital loans. Loan amounts range from a low of a few hundred dollars to $100 million depending on the lender and their source of capital.



  • Streamlined underwriting process typically resulting in faster closing timelines
  • Ability to finance credit-challenged borrowers or transitional properties
  • No depository relationship required


  • Rates and fees tend to be more expensive
  • Less government oversight

Learn to identify the lender types and you’ll be on your way to landing on a solution that works for you.


Step 3: Match your needs to the right program type — look beyond interest rates

Now that you’ve found the right lender, you will want to drill down to specific programs that will work for your situation. Lenders have clearly differentiated programs and options. You should be able to sort through them quickly.


Remember the needs you identified in Step 1? Well, you’ll use that same background about investment strategy, motivation for financing, credit story, and property story in this step to find a lender and program.


Commercial small-balance programs are determined by amortization, terms and prepayment penalties, rates, cash-outs, and other terms. Don’t make the mistake of focusing on just one element. Instead, take the time to study how each attribute forms the complete picture.


Take a program’s rates, for example. If you select a lender based purely on their low rate, you could be doing yourself a big disservice – especially since the lowest rates are often offset by upfront points or covenants that could harm your bottom line. Think of your original purpose for the loan: Do you want to keep the property for a long time, or do you intend to turn the property for a quick profit? If you want a short term solution, the rate won’t make much of a difference.


Of course, you will also want to look closely at the lending bank or company itself. There are big differences between lenders in the quality of their service and certainty of funding. You certainly don’t want to go through a long approval period only to have the deal rejected.



So identifying the right lender for your funding request should be a snap.  Invest your time in Step 1 to learn your real needs, get to know a stable of lenders and their programs, and you will sail through the process.


Partnering with Commercial Direct

Commercial Direct is a non-bank lender offering competitive pricing and flexible terms on loans from $250,000 to $2 million. Our team has closed and funded more than 20,000 small commercial loans, and we specialize in working with business owners and investors to help them get the funding they need — fast and hassle-free.

Author: Zack North

Zack North is the Director of Marketing for Commercial Direct.  As a regular contributor to a number of top industry publications, Zack enjoys writing about topics that help investors and business owners approach commercial mortgage financing with confidence.

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