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Choosing a commercial real estate lender means comparing the complete financing package—not simply the lowest quoted interest rate. Start with transaction fit, then compare the rate structure and all-in cost, maturity and amortization, underwriting assumptions, guarantees and covenants, fees, diligence, and the lender’s ability to close when your project needs funds. The right offer depends on the property, purpose, cash flow, borrower strength, and how long you expect to own or refinance the asset.
This guide is U.S.-focused and is designed for comparing written offers for the same loan amount, property assumptions, funding date, and holding period. Ask every lender for an itemized term sheet and payment schedule, then test each offer against slower lease-up, vacancy, higher costs, rate changes, construction delays, and an unavailable or more expensive refinance.
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What should you compare first when choosing a commercial real estate lender?
Compare transaction and program fit before discussing price. A lender that offers an attractive rate but does not routinely finance your property type, location, loan size, borrower profile, or construction stage may create more risk than a lender with a slightly higher price and a reliable closing process.
Give each lender the same facts:
- Property type, address or market, and whether the asset is stabilized, in lease-up, vacant, or under construction.
- Purpose: acquisition, refinance, construction, renovation, bridge financing, or owner-occupied business real estate.
- Purchase price or current value, requested proceeds, existing debt, and expected funding date.
- Current occupancy, major leases, projected lease-up, operating expenses, and any unusual property income.
- Borrower and guarantor experience, liquidity, other liabilities, and the expected holding or exit period.
Ask whether the lender has limits by geography, property type, loan size, sponsorship, tenant concentration, or construction risk. The Office of the Comptroller of the Currency’s Commercial Real Estate Lending handbook explains that lending policies should establish appropriate terms by loan and property type and account for geographic markets.
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Obtain a written answer to four early questions: Is this transaction eligible? What proceeds range is realistic? What information is needed for preliminary approval? What could still cause a decline after the term sheet? Those answers reveal fit more clearly than a marketing description.
How should you compare interest rates and the true cost of the loan?
Compare the rate mechanism and every financing cost over the period you expect to own or refinance the property. An initial rate is only one component of the cost and may not remain unchanged through closing or the entire term.
Identify the rate structure
- Fixed rate: Confirm the fixed period, whether the rate is locked, the lock expiration, and the fee or deposit required for the lock.
- Variable rate: Record the index, spread, adjustment dates, reset frequency, caps, floors, and any minimum interest rate. Ask what happens if the index rises before closing or during the loan.
- Blended or staged pricing: Construction and bridge facilities may have different pricing during the draw period and after conversion. Request the rate for each stage and the conditions for conversion.
For an adjustable loan, request payment examples at the initial rate and at several higher rates. The examples should use the same balance, amortization, and payment frequency for every lender. Do not rely on a lender’s verbal statement that a future refinance will solve a payment increase.
Build an all-in cost schedule
Ask for a line-by-line estimate of lender and third-party costs, including origination, application, commitment, legal, appraisal, environmental, inspection, engineering, construction monitoring, rate-lock, extension, exit, and prepayment charges where applicable. Identify which amounts are refundable, which are credited at closing, and which remain payable if the loan is declined or the transaction does not close.
Compare the projected cash cost through your expected sale or refinance date, not only the cost through closing. Include interest paid, required reserves, unused-line fees, extension charges, and any payoff premium. If two loans have different maturities or amortization schedules, calculate the outstanding balance at your expected exit as part of the cost comparison.
For SBA 7(a) financing, the U.S. Small Business Administration says rates are negotiated with the participating lender subject to SBA maximums and may be fixed or variable. That means two participating lenders can present different pricing, fees, underwriting conditions, and execution requirements even when both use the same SBA program.
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Maturity is when the loan becomes due; amortization is the schedule used to repay principal. A loan can have a 25-year amortization but a five-, seven-, or 10-year maturity, leaving a balloon balance that must be refinanced, sold, or paid from another source.
Request a complete payment schedule showing:
- Initial principal and payment frequency.
- Any interest-only period and the date principal payments begin.
- Amortization period and the payment amount during each phase.
- Outstanding balance at maturity and at your expected sale or refinance date.
- Extension options, extension fees, required paydown, updated valuation, and other conditions.
The OCC handbook treats maximum maturity and amortization schedules as separate policy subjects and addresses limits on nonamortizing loans. Use that distinction when reading a term sheet: a lower initial payment can conceal a larger maturity obligation.
Analyze extension risk as if you cannot obtain the extension. A lender may require a minimum debt-service coverage ratio, updated appraisal, leasing milestones, principal reduction, additional collateral, or a fee. If the property is under construction or in lease-up, ask whether an extension depends on completion certificates, occupancy, signed leases, or a new credit approval.
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How do lenders decide the loan amount?
Lenders generally size commercial real estate debt using several measures at once: loan-to-value (LTV), debt-service coverage ratio (DSCR), debt yield where used, property cash flow, valuation, borrower equity, and guarantor support. The applicable definitions and thresholds vary by property and transaction, so ask for the actual inputs rather than a headline percentage.
Loan-to-value (LTV)
LTV compares the loan amount with collateral value. Confirm whether the lender uses purchase price, an appraisal, cost, stabilized value, or the lowest of several figures. Ask how it treats future improvements, excess land, personal property, and discounts for vacancy or specialized use.
The Federal Reserve’s Commercial Bank Examination Manual includes supervisory LTV categories in a real-estate-loans chapter marked April 2014 within the manual labeled February 2026. It lists 65% for raw land, 75% for land development, 80% for commercial, multifamily, and other nonresidential construction, and 85% for improved property. These are supervisory limits for specified categories—not promises of eligibility, universal lender targets, or current market offers.
Debt-service coverage ratio (DSCR)
DSCR compares income available for debt service with required debt payments. Ask the lender to show its calculation of net operating income (NOI), including treatment of vacancy, concessions, management fees, replacement reserves, tenant improvements, leasing commissions, and one-time expenses. Confirm whether annual debt service uses the initial payment, a stressed payment, or the highest payment expected during the term.
Two lenders can reach different DSCR results from the same rent roll because they normalize expenses, reserves, or vacancy differently. Require each lender to provide the NOI and debt-service figures used to size proceeds and to state the cushion it requires.
Debt yield
Debt yield relates property NOI to the loan amount. Some lenders use it as a measure of property cash-flow protection independent of the interest rate and amortization. The OCC identifies minimum debt yield, DSCR, and LTV as subjects effective CRE policies generally address, but it does not establish one minimum debt-yield figure for every transaction.
Equity and global repayment capacity
Property cash flow may not be the only repayment source. Lenders can evaluate borrower and guarantor assets, liquidity, liabilities, global cash flow, experience, and the amount of hard equity invested in the project. Ask whether contributed land, fees, appreciated value, or subordinate financing qualifies as equity and whether a minimum cash contribution must remain in the property after closing.
Request a downside sizing case. Have the lender show proceeds if NOI is lower, vacancy is higher, expenses rise, the appraisal is below expectations, or the interest rate resets upward. This reveals which assumption—not the advertised maximum LTV—actually limits your loan.
What recourse, guarantees, and covenants should you compare?
A rate comparison is incomplete without a liability comparison. Determine whether the loan is full recourse, partial recourse, or nonrecourse, and identify every circumstance that can create personal liability.
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- Guarantee scope: Is there a payment guaranty, completion guaranty, carry guaranty, or environmental indemnity? Does liability cover all debt or only specified losses?
- Burn-off provisions: Does recourse decrease after completion, leasing, stabilization, principal reduction, or another milestone? Is burn-off automatic or subject to lender certification?
- Bad-boy carve-outs: Identify acts that can trigger recourse, such as fraud, bankruptcy-related actions, misuse of rents, unauthorized transfers, or prohibited liens. Have counsel review the exact language.
- Additional collateral: Ask whether the lender requires pledges of other real estate, securities, deposits, or personal assets.
- Financial covenants: Compare minimum liquidity, net-worth, DSCR, debt-yield, and reporting requirements, plus cure periods and consequences of a breach.
- Property covenants: Review insurance, taxes, reserves, repairs, leasing approvals, management changes, tenant concentrations, alterations, and permitted debt.
- Cash management: Determine when rents are swept, trapped, or controlled, what releases are permitted, and whether a cash trap can continue after the cause is cured.
Ask what happens after a covenant failure: notice, cure period, cash trap, default interest, additional reserves, mandatory paydown, acceleration, or recourse. The OCC handbook identifies recourse, guarantor support, borrower and guarantor financial condition, and covenants as core underwriting and agreement considerations.
Which fees, diligence items, and closing conditions matter most?
Execution risk often determines whether a loan is useful. Compare the lender’s diligence list, approval sequence, third-party report process, and remaining conditions—not just the term-sheet economics.
Itemize diligence
Confirm who orders and pays for the appraisal, environmental report, property-condition assessment, survey, zoning report, title work, insurance review, engineering review, lease audit, and construction budget review. Ask whether reports can be transferred if you choose another lender and whether the lender requires specific vendors or report formats.
Clarify approval and closing conditions
Request a written list of open conditions, including entity documents, financial statements, rent rolls, leases, permits, plans, budgets, insurance, deposits, title exceptions, and legal opinions. Ask which items are required for final credit approval and which are only closing mechanics. A preliminary indication is not a commitment until the lender confirms approval authority and conditions.
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Compare the draw process in detail: required inspections, lien waivers, architect certificates, cost-to-complete tests, retainage, contingency controls, interest-reserve treatment, and the time from a draw request to funding. Ask who may approve change orders, what happens when costs exceed the budget, and whether the lender can suspend draws for a covenant breach or missed milestone.
Also compare completion and conversion requirements. A construction facility may require a certificate of occupancy, final lien releases, updated appraisal, leases, operating statements, or a minimum occupancy level before converting to permanent debt. A lender with a lower spread but slow or highly conditional draws can increase carrying costs and contractor-payment risk.
How can you compare two written loan offers fairly?
Use the same assumptions and a written matrix. A side-by-side comparison is meaningful only when the loan amount, funding date, property data, occupancy assumptions, and expected holding period are consistent.
| Axis | What to place in the matrix | Questions to ask |
|---|---|---|
| Transaction fit | Property type, location, purpose, size, occupancy, borrower and program eligibility | Does the lender finance this asset and use? What geography, concentration, or sponsor limits apply? |
| Price | Fixed or variable rate, index and spread, fixed period, lender fees, third-party fees, rate-lock cost | What is the total cash cost through the expected exit? Can the rate change before closing or during the term? |
| Repayment | Maturity, amortization, payment frequency, interest-only period, maturity balance | Is there a balloon? What are extension conditions, fees, and required paydown? |
| Credit sizing | LTV, DSCR, debt yield if used, valuation method, hard equity, guarantor support | Which NOI, appraisal, vacancy, expense, and interest-rate assumptions set proceeds? |
| Liability and control | Recourse, guaranties, collateral, covenants, cash management, reporting | What default or covenant event can trigger recourse, a cash trap, or acceleration? |
| Execution | Diligence list, approval path, reports, closing conditions, draw process | What remains to be approved, who controls reports, and when can funding realistically occur? |
| Flexibility and exit | Prepayment, defeasance or yield maintenance where applicable, sale, assumption, extension, refinance | What happens if you sell, refinance, repay early, or miss maturity? |
The matrix is a decision aid, not a substitute for the note, mortgage, guaranty, commitment, and related documents. Those documents control. Have qualified legal and tax advisers review provisions that affect liability, transfer, prepayment, and default.
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- Normalize the inputs. Give all lenders identical property, rent-roll, cost, timing, and exit assumptions.
- Screen for fit. Eliminate offers that cannot finance the property, location, purpose, loan size, or construction stage.
- Compare proceeds and equity. Record the lender’s valuation, NOI, DSCR, LTV, debt-yield, and required hard-equity assumptions.
- Model payments and balances. Show the initial payment, stressed payment, principal balance at exit, and balloon at maturity.
- Add every cost. Include lender charges, third-party diligence, reserves, extension costs, prepayment charges, and expected interest.
- Read control terms. Compare recourse, guarantees, cash management, covenants, reporting, and default remedies.
- Test execution. Confirm approval authority, open conditions, report timing, draw mechanics, and realistic funding date.
- Stress the exit. Model a slower lease-up, higher operating expenses, delayed completion, rate increase, lower value, and no refinance on expected terms.
- Get clarifications in writing. Ask the lender to update the term sheet or commitment rather than relying on emails or verbal assurances.
What downside scenarios should you run before selecting a lender?
Choose the offer that remains workable under plausible setbacks, not merely the one that wins the base case. At minimum, run these scenarios:
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- Lease-up delay: Occupancy reaches stabilization later, reducing NOI and increasing carry costs.
- Vacancy or tenant loss: A major tenant leaves, concessions increase, or a lease renewal is delayed.
- Expense inflation: Taxes, insurance, utilities, repairs, payroll, or contractor costs exceed the budget.
- Rate reset: A variable-rate loan reprices upward or a rate lock expires before closing.
- Construction delay: Permitting, materials, labor, inspections, or change orders postpone completion and conversion.
- Lower valuation: The appraisal or stabilized-value opinion is below the assumption used in your equity plan.
- Refinance failure: Future lenders offer less proceeds, a higher rate, a shorter term, or no loan at all.
For each case, identify the first covenant that could fail, the additional cash required, the lender’s remedy, and your available source of funds. Compare whether the lender permits a cure, reserve top-up, principal paydown, or negotiated extension.
When is SBA 7(a) worth comparing with conventional commercial real estate debt?
SBA 7(a) can be a conditional comparison path for a qualifying operating small business acquiring, refinancing, or improving real estate or buildings. The business generally must be for-profit, operate in the United States, meet SBA size rules, demonstrate creditworthiness and reasonable repayment ability, and generally be unable to obtain the desired credit on reasonable terms from non-government sources.
Eligibility is not automatic because a property produces adequate cash flow. Compare the participating lender’s SBA interpretation, required equity, guarantees, collateral, rate type, fees, underwriting timeline, and closing conditions with a conventional offer. Verify current requirements directly with the SBA and the lender because program provisions can change.
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| Program detail | Published figure | How to use it |
|---|---|---|
| Maximum 7(a) loan amount for most loans | $5 million | A program ceiling, not a promise that a borrower or property will qualify for that amount. |
| SBA Express and Export Express maximum | $500,000 | Compare the applicable program and lender process; do not assume it fits every real-estate use. |
| Maximum term for most 7(a) loans | 25 years | The shortest appropriate term depends on repayment ability; real-property financing can have a specific additional construction or improvement completion period. |
| Qualifying prepayment provision | 5%, 3%, or 1% of the prepayment in years one, two, or three | Applies to qualifying loans with maturities of at least 15 years when 25% or more of the outstanding balance is voluntarily prepaid; check the current rule and documents. |
These figures come from SBA guidance accessed in November 2026. Treat them as program limits and provisions, not as a quote for your transaction.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What do supervisory LTV figures mean for a borrower?
Supervisory limits provide regulatory context, not a shopping list of leverage targets. The Federal Reserve manual’s cited table lists the following categories:
| Property category | Supervisory LTV limit |
|---|---|
| Raw land | 65% |
| Land development | 75% |
| Commercial, multifamily, and other nonresidential construction | 80% |
| Improved property | 85% |
The category, valuation method, exemptions, and supervisory context matter. A lender can impose a lower limit because of market conditions, property risk, borrower strength, tenant concentration, construction complexity, or its own policy. Do not present these figures as common offers or guaranteed eligibility.
What should a final term-sheet checklist include?
Before selecting a lender, confirm that the written offer addresses each item below:
- Borrower, guarantor, collateral, property, purpose, loan amount, and expected funding date.
- Rate type, index, spread, caps, floors, fixed period, adjustment dates, and lock conditions.
- Origination, application, commitment, legal, appraisal, environmental, inspection, engineering, extension, exit, and prepayment charges.
- Interest-only period, amortization, payment frequency, maturity, balloon balance, and extension terms.
- LTV, DSCR, debt-yield, valuation, NOI, vacancy, expense, reserve, and stress assumptions.
- Required equity, sources and uses, reserves, interest reserve, and treatment of subordinate debt.
- Full, partial, or nonrecourse structure; guaranties, burn-off, carve-outs, and additional collateral.
- Financial and property covenants, reporting frequency, cash management, reserve releases, and cure periods.
- Appraisal, environmental, title, survey, insurance, lease, zoning, condition, and construction-report requirements.
- Approval authority, remaining conditions, closing timeline, draw procedures, inspections, lien waivers, and change-order controls.
- Transfer, assumption, sale, refinance, defeasance or yield-maintenance, default, acceleration, and payoff provisions.
If a material term is blank, marked “to be determined,” or described only in a conversation, treat it as unresolved. Ask for a revised written term sheet before relying on the offer.
What are the most common mistakes in comparing commercial lenders?
- Choosing the lowest headline rate. A lower rate can be offset by a larger fee, shorter maturity, heavier recourse, or expensive prepayment provision.
- Comparing different loan structures. A fully amortizing loan and a partially amortizing balloon loan do not have the same payment or exit risk.
- Using each lender’s preferred assumptions. Different NOI, vacancy, and valuation inputs make proceeds and ratios incomparable.
- Ignoring the maturity balance. Focus on the amount due when the loan matures and whether the property can realistically support a refinance.
- Assuming “nonrecourse” means no personal exposure. Carve-outs, completion obligations, environmental indemnities, and payment guarantees can still create liability.
- Underestimating diligence and draw timing. A delayed report or draw can postpone closing, contractors, leases, and revenue.
- Relying on an extension that is not guaranteed. An extension is valuable only if its objective conditions, fees, and lender discretion are understood.
- Failing to document clarifications. The signed loan documents, not an informal promise, determine your obligations.
Borrower questions often focus on payment structure, repricing, prepayment, recourse, and the payoff result. A public discussion using that language is useful for understanding what borrowers worry about, but it is anecdotal and does not establish market prevalence or a recommended structure.
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How do you make the final lender decision?
Select the lender whose complete package best fits the property’s risks and your planned ownership period. A practical decision gives priority to a lender that can finance the exact transaction, sizes proceeds from transparent and defensible assumptions, offers a manageable maturity and exit, limits unintended personal exposure, and can satisfy diligence and funding requirements on schedule.
Then compare total expected cost under both the base case and downside cases. If the offers remain close, favor the clearer documents, more predictable draw and approval process, and terms that preserve workable options to sell, refinance, or cure a problem. Have real-estate counsel, tax advisers, and other appropriate professionals review the commitment and definitive documents before signing.
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The criteria are drawn from OCC commercial real estate underwriting guidance, Federal Reserve supervisory LTV context, SBA program guidance, and the practical questions borrowers raise about repricing, prepayment, recourse, payment structure, and payoff. They are comparison criteria—not a recommendation of one lender, ratio, leverage level, or loan product for every property.
Frequently Asked Questions
Can I compare term sheets with different loan amounts?
Only after normalizing the assumptions. Ask each lender to size the same requested amount and also show the maximum proceeds under its own valuation, NOI, DSCR, LTV, and debt-yield tests so you can distinguish a pricing difference from a leverage difference.
What documents should a borrower request before paying for diligence?
Request the lender’s preliminary term sheet, underwriting assumptions, fee schedule, required diligence list, approval conditions, and proposed timeline. Confirm whether application or third-party fees are refundable and whether reports can be transferred if the transaction moves to another lender.
Does a fixed-rate loan eliminate interest-rate risk?
It removes repricing risk during the fixed period but not necessarily rate-lock expiration risk before closing, refinance risk at maturity, or prepayment costs if you exit early. Check the fixed period, lock conditions, maturity balance, and payoff provisions together.
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How should partners divide responsibility for lender comparison?
Assign one person to maintain the assumptions matrix and another to review legal, guaranty, and covenant language. Require every clarification, waiver, and condition to be captured in the lender’s written term sheet or commitment so the ownership group is relying on the same information.
What if a lender will not disclose its DSCR or valuation assumptions?
Treat the offer as difficult to underwrite and ask for the assumptions in writing before proceeding. Without them, you cannot reproduce the proceeds calculation, stress the loan, or know which change in property performance could trigger a covenant problem.
