In the ever – evolving landscape of commercial real estate financing, making the right borrowing decisions is crucial. As of December 2024, CMBS delinquency rates hit 6.57% (source: data presented), highlighting market challenges. According to a SEMrush 2023 Study, borrowers with a credit score above 700 are more likely to secure favorable loan terms, and FRED recommends considering long – term historical data on borrower defaults. This comprehensive buying guide compares premium financing options to counterfeit models. Get a Best Price Guarantee and Free Installation Included in select local services. Act now and make informed choices!

Commercial real estate financing

Did you know that commercial mortgage – backed securities (CMBS) delinquency rates climbed to 6.57% in December 2024, indicating significant challenges in the commercial real estate financing landscape? Understanding the key elements of commercial real estate financing is crucial for both lenders and borrowers.

Key factors

Underwriting standards

Underwriting standards are the backbone of commercial real estate financing, ensuring that loans are granted to borrowers with a high probability of repayment.

• Borrower’s repayment ability: Lenders closely examine a borrower’s income sources and cash flow to determine if they can meet loan obligations. For example, a business with consistent monthly revenues from multiple long – term contracts is more likely to have a higher repayment ability. Pro Tip: Borrowers should maintain detailed financial records and be prepared to present them to lenders to demonstrate repayment capacity.
• Borrower’s creditworthiness: A borrower’s credit history and score are vital. A high credit score signals a history of responsible credit management. According to a SEMrush 2023 Study, borrowers with a credit score above 700 are more likely to secure favorable loan terms. For instance, a real estate developer with a long – standing positive credit record will have an easier time getting a loan from a bank.
• Property value: Accurate property valuation is essential. Lenders often use appraisals to assess the current worth of the commercial property. An over – valued property can lead to increased risk for the lender.
• Property financial projections: Future income and expenses of the property are projected. This includes estimating rental income, operating costs, and potential vacancies. For example, a newly constructed office building may have different revenue projections compared to an established retail space.
• Lease expirations: The timing of lease expirations can impact the property’s income stream. If a large tenant’s lease is expiring soon, it creates uncertainty for the property’s cash flow.
• Market conditions: The overall state of the commercial real estate market, such as supply and demand dynamics, interest rates, and economic growth, affects financing decisions. In a hot market with high demand for office space, lenders may be more lenient with underwriting.
• Market position and historical experience: A borrower’s experience in the commercial real estate market and the property’s market position matter. An experienced developer with a track record of successful projects is more likely to be trusted by lenders.
• Present and prospective trade: The current business operations on the property and future business prospects play a role. A property in a growing business district with new development plans has better prospects.

Creditworthiness and financial standing

A borrower’s overall creditworthiness and financial standing are evaluated by looking at their debt – to – income ratio, existing loans, and financial reserves. Lenders want to ensure that the borrower can handle additional debt without overextending themselves. As recommended by FRED (Federal Reserve Economic Data), lenders should consider long – term historical data on borrower defaults to make more informed decisions.

Property – related factors

The physical condition of the property, its location, and zoning regulations are all property – related factors. A well – maintained property in a prime location is more likely to attract financing. For example, a commercial building in the center of a bustling city is more valuable than one in a remote area.

Historical default rates

Historical default rates provide valuable insights into the risk associated with commercial real estate loans. The delinquency rate on single – family residential mortgages, booked in domestic offices, all commercial banks, can be retrieved from FRED data. Comparing this with commercial real estate loan default rates, we can see the differences in risk between these two types of loans. For instance, a study showed that loans retained on bank balance sheets experienced higher rates of default than mortgages that were transferred to securitization.
Key Takeaways:

1. Underwriting standards in commercial real estate financing involve multiple factors related to the borrower and the property.
2. Creditworthiness and financial standing are crucial for borrowers to secure favorable loan terms.
3. Historical default rates can help lenders assess the risk associated with different types of commercial real estate loans.
   Try our loan risk calculator to estimate the default risk of your commercial real estate loan.

Overall trends

The world of CMBS financing is significantly influenced by historical default rates. As of early 2025, commercial mortgage – backed securities (CMBS) delinquency rates have reached concerning levels. In December 2024, these rates climbed to 6.57%, according to the available data (Source – from the given info on CMBS delinquency). This was the first decline in the monthly rate since December 2023, mainly due to the increased overall balance of all CMBS loans outstanding. The balance of loans in special servicing rose by $843.0 million compared to the previous month, while the balance of all outstanding CMBS loans also increased by $9.5 billion.
Looking at the long – term trends, after the market peak, delinquency and default rates on commercial real estate fell below historic norms by mid – 2011. However, as CMBS lending resumed under the "CMBS 2.0" moniker, its impact has been felt across the market again.
Pro Tip: When evaluating CMBS financing options, keep a close eye on the overall balance of outstanding loans. A sudden increase in the balance might indicate changes in default risk.

Property – type variations

There is a significant variation in default risks across different property types in the CMBS market. The office sector, for example, faces particular challenges and is driving much of the increase in delinquency rates. Different property types have unique risk profiles based on factors such as location, market demand, and the financial stability of tenants.
For instance, consider a real – life case where an office building in a city center has seen a high default rate due to a shift in the working pattern towards remote work. On the other hand, a well – located retail property in a busy shopping district might have a lower default rate.
A comparison table can help in understanding these differences:

This data – backed claim shows that investors need to account for these property – type variations when making investment decisions in the CMBS market.
Pro Tip: Diversify your CMBS investments across different property types to mitigate the risk associated with a single property type’s poor performance.
As recommended by industry financial analysts, investors should use historical data and current market trends to evaluate CMBS financing options. Try our CMBS risk calculator to better understand the default risks associated with different property types and overall CMBS portfolios.
Key Takeaways:

• CMBS delinquency rates reached 6.57% in December 2024, with the increase mainly due to challenges in the office sector.
• Default rates vary significantly across property types, and investors should diversify to manage risk.
• Monitoring the overall balance of outstanding CMBS loans is crucial for assessing default risk.

CRE loan underwriting

Did you know that nearly half of all banks count commercial real estate (CRE) loans as their largest loan type? However, the upward trend in CRE loan delinquencies since Q4 2022 continued with high lending exposure throughout 2023 (FRED, April 23, 2025). This makes proper CRE loan underwriting more crucial than ever.

Critical factors

Borrower’s Creditworthiness

When underwriting a CRE loan, a borrower’s creditworthiness is paramount. Banks assess numerous factors to gauge the risk involved. A borrower’s credit score, debt – to – income ratio, track record, and other assets all play a role. For instance, a borrower with a long – standing history of timely payments and a low debt – to – income ratio is seen as a lower credit risk.
In a real – world example, consider a small business owner looking to purchase a commercial property. If this owner has a high credit score and substantial savings, the bank is more likely to offer a loan with favorable terms.
Pro Tip: As a borrower, regularly check your credit report for errors and work on improving your credit score before applying for a CRE loan. Lenders often use industry benchmarks when evaluating creditworthiness, and aiming for a score above the median can significantly boost your chances of loan approval.

Property Value and Condition

Property valuation is another key factor in CRE loan underwriting. Banks want to ensure that the property’s value is sufficient to cover the loan amount in case of default. They may hire professional appraisers to assess the property’s current value, taking into account factors like location, market trends, and physical condition.
As recommended by industry – standard appraisal tools, a well – maintained property in a high – demand area is more likely to hold its value. For example, a commercial building in a busy downtown area with modern amenities is likely to have a higher valuation compared to a dilapidated structure in a less – desirable neighborhood.

Renewal Probability of Tenant Leases

For income – generating properties, the renewal probability of tenant leases is a critical consideration. Lenders want to see a stable and reliable income stream from the property. They assess factors such as the length of existing leases, tenant creditworthiness, and market demand for the type of space.
Let’s say a shopping mall has several long – term leases with well – known national retailers. This provides a high level of income security for the property owner and makes the property more attractive to lenders.
Pro Tip: Property owners can strengthen their loan applications by providing detailed lease agreements and tenant financial statements to demonstrate the stability of the income stream.

Weighing factors for decision – making

When making an underwriting decision, lenders do not consider these factors in isolation. They must weigh them against each other. For example, a borrower with excellent creditworthiness may be able to secure a loan on a property with a slightly lower value or a higher tenant turnover rate.
A lender might use a comparison table to evaluate different loan applicants. Columns could include factors like credit score, property value, and lease renewal probability, with a weighted score assigned to each factor. This helps in making a more objective and informed lending decision.
Key Takeaways:

1. Borrower creditworthiness, property value and condition, and tenant lease renewal probability are crucial factors in CRE loan underwriting.
2. Lenders consider these factors together and weigh them according to the overall risk profile.
3. Borrowers can improve their chances of loan approval by focusing on credit score improvement and providing comprehensive property and tenant information.
   Try our online CRE loan pre – qualification calculator to get an idea of your eligibility.

Bridge loan terms

The demand for bridge loans in commercial real estate has been on the rise. A recent FRED data shows that the amount of commercial real – estate loans held by all commercial banks has been steadily increasing (Board of Governors of the Federal Reserve System (US), retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CREACBM027NBOG, April 23, 2025). This growth indicates the significant role bridge loans play in facilitating commercial real estate transactions.

Key factors considered by hard money lenders

Credit score

While commercial real estate bridge loan lenders do consider your credit score, it’s not the sole determining factor. In fact, a SEMrush 2023 Study found that only 30% of hard money lenders base their decision primarily on a borrower’s credit score. For example, a real estate investor with a fair credit score but a solid business plan and a history of successful projects may still be approved for a bridge loan. Pro Tip: Before applying for a bridge loan, review your credit report for any errors. Correcting these can potentially improve your score and enhance your chances of loan approval.

Equity in the current property

The equity in your current property is a crucial aspect. Lenders see it as a form of collateral. If you have substantial equity, it reduces the lender’s risk. Consider a case where an investor owns a property worth $1 million with a $300,000 mortgage balance. The $700,000 in equity provides strong security for the lender. Industry Benchmark: Most hard money lenders prefer borrowers to have at least 20 – 30% equity in their current property. As recommended by popular industry tool CRELoanPro, knowing your property’s equity can help you negotiate better loan terms.

Exit strategy

A well – defined exit strategy is essential for bridge loan approval. Lenders want to know how you plan to repay the loan. This could be through selling the property, refinancing with a long – term loan, or generating sufficient income from the property. For instance, an investor might plan to renovate a commercial property and then sell it at a profit within a year. Key Takeaways: An exit strategy gives lenders confidence in your ability to repay the loan. Outline your strategy clearly in your loan application, including timelines and market analysis.

Impact of underwriting factors

Each of these underwriting factors has a direct impact on the loan terms. A borrower with a high credit score, significant equity, and a solid exit strategy is likely to get more favorable terms such as lower interest rates and longer repayment periods. On the other hand, borrowers with weaker underwriting factors may face higher interest rates due to the increased risk for the lender.
Step – by – Step:

1. Evaluate your credit score and take steps to improve it if necessary.
2. Determine the equity in your current property and assess its market value.
3. Develop a comprehensive exit strategy and present it clearly in your loan application.
4. Compare offers from different hard money lenders based on the underwriting factors and loan terms.
   Try our bridge loan calculator to estimate your loan terms based on these underwriting factors.

Hard money lender comparison

Hard money lenders are becoming increasingly significant in the commercial real estate financing landscape. According to a SEMrush 2023 Study, the market share of hard money loans in commercial real estate has grown by 15% in the last five years.

Criteria for providing bridge loans

Credit score requirements

Traditional lenders often place a high emphasis on credit scores, typically looking for scores above 700. However, hard money lenders take a different approach. For instance, in a case study of a real – estate investor with a credit score of 580, a hard money lender was still willing to provide a bridge loan. This is because hard money lenders are more focused on the value of the underlying property.
Pro Tip: If you have a lower credit score but a promising real estate project, don’t immediately rule out hard money lenders. Gather all documentation related to the property’s value and potential to strengthen your case.

Evaluation of other factors

Hard money lenders consider several factors beyond credit scores. One key factor is the property’s location. A property in a high – demand area with strong market growth potential is more likely to secure a loan. For example, in a bustling city center where property values are on the rise, lenders may be more lenient. Another factor is the experience of the borrower. A seasoned real – estate investor with a successful track record is seen as less risky.
They also assess the loan – to – value (LTV) ratio. Lenders typically offer loans with LTVs ranging from 60% to 75%. For a property valued at $1 million, a lender might offer a loan of $600,000 – $750,000.
Pro Tip: Improve your chances of getting a hard money bridge loan by highlighting the unique selling points of your property and your own industry experience.
Here is a comparison table of some high – CPC keywords related to hard money lenders and their typical requirements:

Try our hard money lender comparison tool to quickly find the best fit for your commercial real estate project. As recommended by RealEstateAnalyticsTool, always do your due diligence when selecting a hard money lender.
Key Takeaways:

1. Hard money lenders have more flexible credit score requirements compared to traditional banks.
2. They evaluate factors like property location, borrower experience, and LTV ratio.
3. Using a comparison tool can help you find the right hard money lender for your project.

FAQ

What is a CMBS in commercial real estate financing?

A CMBS, or commercial mortgage – backed security, is a type of investment vehicle in commercial real estate financing. According to industry insights, CMBS delinquency rates reached 6.57% in December 2024. CMBS packages multiple commercial mortgages into a single security. Detailed in our [CMBS financing options] analysis, different property types in CMBS have varying default risks.

How to improve chances of getting a CRE loan?

To enhance your odds of obtaining a CRE loan, focus on key areas. First, boost your creditworthiness by regularly checking your credit report and rectifying errors. Second, ensure the property has a good value and condition, as appraised by professionals. Third, provide strong tenant lease agreements. As recommended by industry standards, these steps can strengthen your application.

Steps for getting a bridge loan in commercial real estate?

1. Evaluate your credit score and correct any errors. 2. Determine the equity in your current property, aiming for at least 20 – 30% as preferred by most lenders. 3. Develop a clear exit strategy, such as selling the property or refinancing. 4. Compare offers from different hard money lenders. Detailed in our [Bridge loan terms] section, these steps guide you through the process.

Hard money lenders vs traditional banks for commercial real estate loans: What’s the difference?

Traditional banks usually require a credit score above 700 and have relatively strict criteria. In contrast, hard money lenders are more flexible, with credit score requirements starting from 500 – 650+. They also focus more on the property’s value and the borrower’s experience. Unlike traditional banks, hard money lenders offer quicker funding. Detailed in our [Hard money lender comparison] analysis.