Ever since 2022, borrowing money to finance commercial properties has been harder. The Federal Reserve’s March 2025 decision to maintain higher interest rates, plus with 20% of $4.8 trillion in commercial mortgages maturing this year, it’s a difficult lending environment. Everyone is competing for capital.

It’s not all bad news, though. Investors with strong business plans, industry track records, and solid balance sheets can still find ways to secure funding for growth.

This article covers the various financing strategies to give commercial real estate investors options for success in 2025. 

What is commercial real estate financing?

Any external funding used to buy commercial property is commercial real estate financing. It can include asset classes like:

The source of financing might be a bank mortgage loan, commercial equity line of credit, or raising capital from investors. You can also use combinations of these funding types to support the growth of your portfolio.

How does commercial real estate financing work?

Bank commercial real estate loans differ from residential mortgages:

  1. They have shorter terms than residential mortgages, ranging from 5 to 20 years. 
  2. Amortization periods are longer than the actual loan term, which reduces the monthly payments but creates a balloon payment when the loan is due. 
  3. These loans also have higher interest rates and down payments.

If you raise investor capital, this approach pools funds from multiple investors to buy property. Investor funds can buy the asset with cash or apply it to the downpayment and combine it with bank financing. 

Types of commercial real estate loans

Key types of funding for commercial real estate include:

Debt financing

Investors who secure a loan use debt financing. In this scenario, the property serves as collateral for the loan, and the borrower repays the loan with interest over time. The funding might be a traditional bank loan, hard money loan, or specialized loan like an SBA loan or mezzanine financing.

Equity financing

Companies might also raise capital by selling ownership shares in commercial properties. Investors then become partners and share in the property’s loss or gain. There’s no guarantee of repayment, which means there’s a greater risk, but there’s also a larger upside potential. These equity financing options include real estate syndications, joint ventures, and crowdfunding.

Alternative financing options

Other methods can include strategies like seller financing, lease options or securing financing through alternative lenders such as investor debt funds.

Factors influencing commercial real estate financing

Lenders go through their own due diligence process to qualify an investor to buy or refinance commercial properties. Their review looks at areas like:

  • Property type and location: The property location and strength of economic demand. They’ll also consider their overall loan portfolio and risk tolerance for properties in certain geographies or asset classes. 
  • Borrower’s creditworthiness and track record: A borrower’s credit history and performance history also impact financing options. Traditional banks require credit approval, experience with similar projects, and financial proof that you can handle the mortgage payments plus any unexpected costs.
  • Market conditions and interest rates: Overall economic conditions also impact commercial real estate loans. Higher interest rates increase borrowing costs, which causes lenders to become more stringent about which projects they’ll support. Higher rates also raise the overall cost of the loan and deal profitability.
  • Loan-to-Value (LTV) and Debt-Service Coverage Ratio (DSCR): The commercial property itself has to meet certain criteria, including LTV and DSCR. The more down payment you bring, the lower the LTV and risk to the financial institution. Lenders also validate if the property’s cash flow is enough to cover the mortgage payments at a ratio of at least 1.20x.

How to qualify for a commercial real estate loan?

Lenders seek to understand the project’s potential for success and will look at the whole picture. They’ll ask for:

Property details like:

  • Pro forma
  • Rent roll
  • Operating history

Borrower qualifications:

  • Personal financial statement
  • Details on the down payment funds
  • Entity documents for the partnership structure
  • Track record and experience
  • Business plan

Strategies for securing the best CRE financing

There are several approaches for securing the best rates, terms, and CRE loan options: 

  • Improving creditworthiness: If you find that credit approval is a hurdle for getting the best loan, focus on ways to improve. This can be paying down existing debt, building a history of making payments on time, increasing your savings, and fixing any errors on your credit report.
  • Business case: Develop a strong business case for the property that shares your strategies for the property and your exit plan. Lenders want to understand how you’ll increase revenue through methods like raising rent or reducing expenses.
  • Operator partner: If you’re looking at a commercial property in an asset class you don’t have experience with, consider partnering with someone who does. For example, you can team up with a property management firm or another investor who has a track record with the specific property type.
  • Working with commercial mortgage brokers: Commercial brokers have access to several lenders and can provide you with a few options. Their role is to find the best fit for your property and specific financial situation.
  • Negotiating loan terms: Shop around for the best terms from traditional banks or credit unions. Consider more than just the interest rate and ask about other fees like closing costs or a reduction in the minimum down payment. Also, look at rate details. Fixed interest rates give you the most stability, but variable rates might be a better option to meet the DSCR requirement.
  • Alternative financing options: Consider other options, like partnering with other investors to combine capital and buy properties. 

Benefits of commercial real estate financing

Leveraging outside capital for your commercial real estate investments can give you an advantage with:

  • Access to capital for property acquisition and development: Commercial real estate loans help you grow your portfolio faster versus relying solely on your own capital. Financing can bridge the gap between the property cost and your available cash.
  • Leverage to maximize ROI: Leverage helps you increase your return on investment because you invest less of your own money in the project. For example, if you put 25% down on a property and it appreciates 10%, that equals a 40% return on your invested equity.
  • Flexibility with multiple financing options: Investors can combine several financing options to support each project. These include fixed-interest rate loans, bridge loans, construction financing, SBA loans, and investor capital.
  • Potential for long-term wealth creation: Financing can help you scale. It allows you to spread capital across multiple properties that can generate cash flow and appreciation. As you pay down debt and the property’s value increases, your equity grows. Over time, you can create wealth through income, equity gains, and real estate tax benefits.

Challenges in commercial real estate financing

Challenges to be aware of include:

ChallengeImpact
Market volatility and interest rate fluctuationsReduced deal volume and increases the cost of debt.
Regulatory and compliance risksStaying updated and meeting regulations adds complexity.
Risk of default and foreclosureCash flow issues or declines in property value could result in losing the asset.
Complex deal structures and legal implications May require legal oversight to protect all parties.
  • Market volatility and interest rate fluctuations: Changes in the market and higher interest rates reduce deal volume and make debt more expensive or harder to secure.
  • Regulatory and compliance risks: Investors and lenders have to meet local regulations like zoning laws and federal rules like financial disclosures. Staying on top of these adds complexity to the funding process.
  • Risk of default and foreclosure: If the property has cash flow issues or declines in value, it can impact a borrower’s ability to meet loan obligations. This raises the risk of loan default and asset foreclosure.
  • Complex deal structures and legal implications: Commercial real estate loans involve multiple stakeholders and complex agreements that require legal oversight to protect all parties.

How to leverage technology in commercial real estate financing

Technology can support the entire capital funding process by:

Automation in loan origination and management

Automation speeds up the commercial real estate financing process and provides more visibility into overall status. It supports the entire loan lifecycle and reduces manual in areas like:

  • Loan application and underwriting: Borrowers can upload documents through online portals. Lenders can speed up underwriting decisions by using software to pull credit data, property financials, and market comps.
  • Risk evaluation: Automated systems help banks quickly evaluate borrower risk by leveraging real-time data on past performance and trends across the market or asset type.
  • Loan servicing and compliance: After closing on a loan, both parties can use dashboards to monitor payments, terms, and maturity dates.

Data analytics for better decision-making

Combining data from property management, accounting, and performance systems into a single dashboard helps build a stronger business case for lenders. It also makes it easier to support your investment strategy by:

  • Tracking performance: Show occupancy, rent growth, and NOI at a glance.
  • Real-time reporting: Immediately pull data on financial details to support lender compliance.
  • Guiding decisions: Compare expenses to actual results to make investment decisions for the most impact.

Investor portals for transparency and efficiency

If you raise capital from investors to support your acquisition strategy, you’ll need a way to manage overall investor relations. A complete investor management solution helps you support investors by:

  • Investor reporting: Provide real-time details on property financials and performance status.
  • Distribution calculations and tracking: Accurately calculate investor returns based on investor ownership percentages. Keep stakeholders updated on when they can expect returns and distributions.
  • Accounting and tax documents: Make it easy for investors to access their investment statements and details for tax reporting.
  • Sharing new projects: Communicate new investment opportunities and projects tailored to each investor’s specific objectives.

This level of transparency gives investors confidence, builds trust, and presents a professional image for your investment firm.

Common mistakes to avoid when applying for a commercial real estate loan

Watch out for pitfalls in the commercial lending process like:

  • Overleveraging and misjudging LTV ratios: Properties with higher bank financing amounts and LTV ratios increase overall risk. A change in property value can leave investors owing more than the property is worth and impact your overall business plan.
  • Underestimating operational costs: Operational expenses like maintenance or marketing concessions to fill properties can hurt profitability and cash flow. Creating a conservative business plan with larger reserves for expenses can help to offset this risk.
  • Ignoring exit strategy planning: If your entire strategy is to sell the property for a profit, this creates a risk. Market conditions can change, so having a plan in case you need to hold longer gives you flexibility.

Conclusion

Commercial real estate financing gives you a way to grow without relying only on your own capital. Most investors don’t have enough personal funds or cash flow to scale at the pace they want, which is where bank loans or investor capital bridge the gap.

It’s not always easy to get approved or raise investor capital, but the right project combined with a strong business plan can make a difference.

If you’re raising capital, using software like Agora to manage the full investor lifecycle can simplify operations, build trust, and keep everything organized as you grow.