Commercial Mortgage Products Explained: What Resi Brokers Need to Know

Looking to add commercial financing deals to your portfolio? You're about to step into a world with a completely different set of loan options. The basic idea is still the same — helping people borrow money to buy or build a property — but the details work differently in ways that really matter.

How Commercial Loans Are Different

Commercial lending is a whole different animal compared to residential. Instead of the 15- to 30-year loans you're used to, commercial loans usually run just five to 10 years. That means refinancing comes up way more often.

Another big difference? The mismatch between how long the loan is calculated for versus when it's actually due. Many commercial loans are set up with payments calculated over 20 to 30 years, but the full balance comes due after just five, seven, or 10 years. This creates those balloon payments you've probably heard about. It's not like residential loans where you just pay the whole thing off over time (except in the case of HUD's incredible multifamily loans, but that's a whole different topic).

The down payment situation is different, too. While your residential clients might put down as little as 3%, commercial deals typically need at least 20% or 30% down. That's a big chunk of change on larger properties.

Here's another major shift: what lenders care about during underwriting. In residential, it's all about the borrower's income and credit score. In commercial, the focus massively switches to the property itself — how much income it brings in, how full it is (and stays), and whether those numbers work for the loan. Someone with perfect credit could still get turned down if the property's financials don't add up.

Oh, and commercial loans almost always have prepayment penalties, while they're less common in residential. Plus, many commercial loans are non-recourse, meaning if things go south, the lender can only take the property, not go after the borrower's other assets. That's rarely the case with home loans.

Now let's check out the main types of loans you'll run into.

Conventional Commercial Loans

Think of these as the commercial version of a regular home mortgage, but with those key differences we just talked about. They come from banks and other financial institutions and work best for stable properties that are already making money.

They usually run five to 10 years, but the payments are calculated as if you're paying them off over 20 or 30 years. This creates that balloon payment at the end. Rates can be fixed or variable, and you'll typically need to put down 20% to 30%.

Unlike residential loans, these put a ton of weight on something called debt service coverage ratio, or DSCR. Lenders typically want to see that a property makes at least 1.25 times (in a year) what the annual loan payments are. Basically, they want to know the property brings in enough cash to cover the loan payments with room to spare.

Finding the right lenders used to mean years of networking, but now platforms like Janover Pro can help you quickly see which lenders offer these loans for specific property types in different locations. That's a huge time saver when you're just getting started.

SBA Loans: 504 and 7(a) Programs

The Small Business Administration offers some loan programs that can be more accessible for smaller investors or people buying property for their own business. The SBA doesn't issue the loans itself, but instead works through SBA lenders who specialize in business loans.

SBA 504 loans are specifically for big fixed assets like real estate and equipment. They can run up to 25 years (longer than typical commercial loans) and need less money down (around 10%). They're set up in a unique way: a bank funds 50%, an SBA-backed organization called a CDC funds 40%, and the borrower puts in 10%.

Unlike typical commercial loans, SBA 504 loans are fully paid off over their term with no balloon payment at the end. That makes them more like residential mortgages in how the payments work. But there's a catch — they're only for properties where the owner's business will take up at least 51% of the space.

The SBA also has 7(a) loans, which are more flexible and can cover various business needs, including real estate. These can also go up to 25 years for real estate with down payments of 10% to 20%. Like the 504 loans, they get paid off over their full term. The SBA guarantees part of the loan, which makes lenders more willing to approve businesses that might not otherwise qualify for regular commercial financing.

Both SBA programs focus more on the business than personal credit, though they'll still want personal guarantees in nearly all cases.

Bridge Financing

Bridge loans are short-term solutions for temporary gaps — like when you buy a property before you've secured permanent financing, or during renovations. They typically last from six months to two, sometimes three, years.

These loans usually have interest-only payments, so you're not paying down the principal during that time. Lenders are super focused on your exit strategy — how you plan to pay off or refinance when the bridge period ends.

Down payment requirements vary and can sometimes be lower than conventional loans. These work really well when you're repositioning a property, adding value, or just need to close quickly. That said? They can be pretty expensive in terms of the rates you'll get.

There's not really anything comparable in residential lending. The closest might be hard money, but bridge loans are pretty mainstream in commercial real estate. Janover Pro can help you find bridge lenders who specialize in specific property types or situations — connections that would normally take years to build up.

Hard Money Loans

When traditional financing isn't available or time is super tight, hard money loans from private lenders come into play. These focus mainly on the property value rather than borrower qualifications, making them accessible when other doors are closed.

Hard money loans are short (one to max five years) with higher interest rates than conventional loans. They're often interest-only and need far less paperwork than traditional loans. Their biggest selling point is speed — many can close in days rather than weeks or months.

While hard money exists in both residential and commercial worlds, it's much more common and accepted in commercial lending. The rates tend to be lower than residential hard money, and the terms can be more flexible. For deals that need to close fast, borrowers with credit issues, or properties needing major work, hard money can be the way to go when traditional lenders just can't or won't move quickly enough.

CMBS (Commercial Mortgage-Backed Securities)

Now we're getting a bit more complicated. CMBS loans are loans that are specifically made to be bundled into securities and sold to investors. They typically work for larger, stable properties with loans over $5 million.

They usually have five- to 10-year terms (though I'd say about 90% are for 10 years) with amortization up to 30 years, creating those balloon payments. They almost always have fixed rates and are non-recourse, meaning lenders can only take the property if things go wrong, not go after the borrower's other assets.

These loans come with strict prepayment penalties, often something called defeasance (which is basically replacing the collateral with government securities). The underwriting process is intense, but once you close, the terms are locked in, giving you certainty throughout the loan.

While residential mortgages can be securitized too (that's basically what Fannie Mae and Freddie Mac do), CMBS loans are specifically created for securitization and have much stricter terms after closing.

Construction Loans

Building or renovating commercial properties requires specialized financing — construction loans. These short-term loans typically last one to three years with interest-only payments while you're building.

Unlike permanent loans, construction loans release money according to a schedule based on construction milestones. Underwriting focuses on what the property will be worth when it's finished, not what it's worth now. Lenders pay close attention to your construction plan and budget.

Although some construction loans convert to permanent financing once the project is done, many do not and need to be refinanced. Lenders typically want 20% to 30% of the project cost as a down payment and really care about your development experience, e.g. whether you've done similar projects before. If you haven't, it's not impossible to get a loan, but expect less advantageous terms (and lower loan-to-cost ratios).

Construction loans exist in residential real estate too, but commercial construction lending involves more complex draws, more scrutiny of the construction plan, and usually requires more developer experience.

Mezzanine Financing

Now we're getting into the more sophisticated stuff. Mezzanine financing is additional debt that sits between the primary mortgage and equity. It provides extra capital beyond what senior lenders will provide.

These loans typically run three to five years with interest-only payments and higher rates than the primary mortgage. What makes them unique is how they're secured — instead of putting a lien on the property itself, they're secured against the ownership interests in the entity that owns the property.

Many mezz loans include equity participation, giving the lender a stake in how well the property performs beyond just collecting interest. This works well when borrowers need more capital than what the senior loan provides but don't want to bring in more equity partners who would dilute their ownership.

There's really no equivalent to mezzanine financing in residential lending. It's a sophisticated tool mainly used for larger commercial deals with complex capital structures.

Oh, and one important note: Many lenders won't allow you to take mezzanine financing. Some programs (like all of HUD's, for example) outright prohibit it, and most others require the borrower to seek and obtain lender approval beforehand.

Matching the Right Loan to Each Deal

As you start doing commercial deals, you'll develop a feel for which loan works best in different situations. Stable, income-producing properties usually work well with conventional commercial loans, or CMBS for bigger properties. Owner-occupied business properties often get the best terms through SBA 504 or 7(a) loans.

Properties needing renovation typically require bridge financing followed by permanent loans, or construction loans for major overhauls. When you need to close super fast, hard money or bridge loans are the way to go. And large portfolio buys might combine conventional financing with mezzanine components to maximize leverage while keeping control.

Using Janover Pro's search tools helps you quickly figure out which lenders offer which products for specific property types and locations — cutting down your learning curve dramatically as you build up your commercial lending know-how.

Moving Forward

As you expand into commercial mortgage brokering, each of these loan products gives you new ways to help your clients and grow your business. There's definitely a learning curve, but the basics of lending still apply — it's all about finding the right financing for each unique situation while managing risk.

Commercial lending opens doors to bigger, more complex deals with higher commissions. The products might be significantly different from what you're used to in residential, but your skills in understanding what clients need, building relationships, and putting together successful deals will serve you well as you grow into this new market.