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Commercial Real Estate Financing, Explained.

Purchase, refinance, and bridge loans aren't the same product with different names — they solve different problems. Here's how each actually works.

Commercial real estate financing covers a wide range of situations — buying a building, refinancing one you already own, or bridging the gap while a property gets stabilized. The right structure depends entirely on where the property (and the deal) actually stands, not just what you'd prefer the terms to look like.

The three financing situations

Purchase financing

This is the most straightforward case: buying an income-producing commercial property. Lenders evaluating a purchase loan look closely at the property's existing (or projected) income, the purchase price relative to appraised value, and the borrower's experience owning or operating similar property. Terms are typically longer — 5, 10, even 25+ years depending on the lender and program — because the lender is underwriting a stabilized asset, not a transition.

Refinance

Refinancing replaces an existing loan with a new one, usually for one of a few reasons: the current loan's term or rate no longer fits, the property's value has increased enough to pull equity out (a cash-out refinance), or a maturing loan needs to be replaced before it comes due. The underwriting looks similar to a purchase loan, but the property's actual performance history — not just projections — carries real weight, since the lender has real operating data to evaluate instead of a pro forma.

Bridge loans

Bridge financing exists for the gap between "not ready for a conventional loan yet" and "stabilized." That covers a lot of ground: a property that isn't fully leased, one that needs renovation before it can be refinanced permanently, or a deal that needs to close faster than a conventional loan's timeline allows. Bridge loans are short-term (often 6-36 months), carry higher rates than permanent financing, and are structured with the expectation that the borrower refinances into a conventional loan once the property qualifies for one. The tradeoff is speed and flexibility in exchange for cost — and for the right situation, that tradeoff is worth it.

What lenders actually look at

Every commercial real estate lender evaluates a deal differently in the details, but a few factors show up almost universally:

  • Loan-to-Value (LTV) — the loan amount as a percentage of the property's value. Lower LTV generally means better terms, since the lender has more cushion if the property loses value.
  • Debt Service Coverage Ratio (DSCR) — whether the property's income comfortably covers the loan payment. Most lenders want to see the property generating meaningfully more income than the debt payment requires, not just enough to break even.
  • Property type and condition — multifamily, retail, office, industrial, mixed-use, and hospitality properties each have different lenders who specialize in (or avoid) them, and physical condition affects both value and insurability.
  • Borrower experience — a track record owning or operating similar property matters more in commercial lending than in residential, especially for larger deals.
  • Occupancy and lease terms — for income-producing property, who's paying rent, on what terms, and for how long directly drives the property's underwritten value.

Where a broker fits in

Commercial real estate lending isn't one market — it's dozens of lenders, each with different property-type preferences, deal-size sweet spots, and risk tolerance. A deal that gets declined by one lender for being "too early-stage" might be exactly what a bridge lender specializes in. A broker's job is knowing which lenders actually fit a specific deal, instead of a borrower applying one lender at a time and treating each decline as the final word.

Have a specific commercial real estate deal in mind? Tell us about it, or if you're a lender, broker, or other professional with a client who needs a financing option, refer the opportunity.

Frequently asked

What's the difference between a purchase loan and a bridge loan for commercial real estate?

A purchase loan is standard, longer-term financing to buy a stabilized, income-producing property. A bridge loan is short-term financing used when a property isn't ready for that kind of loan yet — it's not fully leased, needs renovation, or the deal needs to close faster than a conventional purchase loan allows. Bridge loans typically carry higher rates in exchange for speed and flexibility, with the expectation the borrower refinances into permanent financing once the property stabilizes.

What is DSCR and why does it matter for commercial real estate loans?

DSCR (Debt Service Coverage Ratio) measures whether a property's income covers its debt payments — net operating income divided by total debt payments. A DSCR of 1.25, for example, means the property generates 25% more income than needed to cover the loan payment. Most commercial lenders want to see a DSCR of at least 1.20 to 1.25, though this varies by property type and lender.

Can you get commercial real estate financing with bad credit?

Yes, though the options narrow and pricing typically goes up. Conventional bank financing is hardest to qualify for with damaged credit, but private lenders, hard money lenders, and some non-bank commercial lenders weight the property's income and value more heavily than the borrower's personal credit score. A broker working with a wide lender network can identify which lenders are realistic for a given credit profile instead of collecting declines one at a time.

Last updated: August 2026

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