Finding a straight answer on conventional commercial loan rates is surprisingly hard right now. You’d think there would be a big billboard with a number on it, but the reality is much messier. One day you’re looking at 6.5%, and the next, a regional bank in Ohio pulls their program entirely because their balance sheet looks a little shaky. It’s frustrating.
Most people assume these rates just follow the 10-year Treasury note. They don't. Or rather, they do, but with a bunch of "spreads" and "risk premiums" tacked on that make the final number look a lot different than what you see on CNBC. If you're looking to buy a warehouse or a retail strip, you're not just fighting the Fed; you're fighting the bank's own internal anxiety about the economy.
Banks are picky. Really picky.
Why Conventional Commercial Loan Rates Aren't Just One Number
When we talk about "conventional" loans, we’re basically talking about the stuff that isn't backed by the government. No SBA 7(a) or 504. No USDA. Just you and a bank (or a credit union) making a deal. Because there’s no government "safety net," the bank is on the hook if you stop paying. This is why you see such a wild swing in the rates being offered across different zip codes.
A guy buying a medical office in a high-growth area like Austin might see a rate that's a full percentage point lower than someone trying to refinance an older shopping center in a stagnant town. Location is everything. But so is the "asset class." Industrial and multi-family are the darlings of the lending world right now. Office space? Honestly, most banks won't even pick up the phone for a suburban office building unless the debt-service coverage ratio (DSCR) is absolutely bulletproof.
The math is simple but brutal. Banks take the "Base Rate"—usually the 10-year Treasury or SOFR (Secured Overnight Financing Rate)—and add a margin. Typically, that margin is anywhere from 200 to 350 basis points. So, if the 10-year is sitting at 4.2%, you’re looking at a loan somewhere between 6.2% and 7.7%.
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The SOFR Shift
A few years ago, everyone used LIBOR. Then LIBOR died because of some scandals, and now we have SOFR. It’s basically the rate banks use to lend to each other overnight using Treasuries as collateral. It’s more "real" than LIBOR was, but it’s also more volatile. If you get a floating-rate loan, your monthly payment might jump just because the repo market had a weird Tuesday. Most small business owners hate this. They want fixed rates. But fixed rates are getting more expensive because banks have to hedge that risk.
The Secret Levers That Move Your Rate
You’ve probably heard of the "Five C’s of Credit." Character, Capacity, Capital, Collateral, and Conditions. It sounds like something out of a 1950s textbook, but it’s still how these guys think. However, there's a sixth "C" they don't tell you about: Competition.
If a bank is "under-allocated" in commercial real estate for the quarter, they might drop their conventional commercial loan rates just to get some deals on the books. If they’ve hit their limit, they’ll quote you a "go away" rate—something so high you’d be crazy to take it. I’ve seen two identical borrowers get quotes 100 basis points apart just because they walked into different banks on different weeks.
- The LTV Factor: Loan-to-Value is the big one. If you put 35% down, the bank feels safe. They’ll give you a better rate. If you’re pushing for 20% down, expect a premium.
- Recourse vs. Non-Recourse: Conventional loans are almost always "recourse." This means if the building burns down and the insurance doesn't cover it, the bank can come for your house, your car, and your kid's college fund. If you want a "non-recourse" loan where they can only take the property, you’re going to pay a much higher rate, usually through a CMBS (Commercial Mortgage-Backed Security) lender rather than a local bank.
- Prepayment Penalties: This is where they get you. You might get a great rate, but if you try to refinance in three years, you might owe a "yield maintenance" fee that costs more than the interest you saved.
Real World Example: The "Mix-Use" Headache
Take a client of mine—let's call him Mike. Mike wanted to buy a building with a coffee shop on the bottom and two apartments on top. The residential lenders said "it’s commercial" and the commercial lenders said "it’s too small." He eventually found a local credit union that offered him 7.2% on a 20-year amortization with a 5-year reset. It wasn't the "headline" rate he saw online, but it was the only one he could actually get funded.
How to Actually Get the Best Rate Right Now
Don't just walk into the bank where you have your checking account. That’s a rookie move. They know you're lazy, and they’ll price you accordingly. You need to shop. But don't just blast your credit score to twenty lenders at once—that looks desperate.
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Instead, build a "Deal Package." This is a professional PDF that includes your three years of tax returns, a detailed P&L for the property, and a personal financial statement. When a lender sees a clean package, they assume you’re a low-risk borrower. Low risk equals lower conventional commercial loan rates.
Focus on the DSCR
The Debt Service Coverage Ratio is the holy grail. It’s your Net Operating Income (NOI) divided by your annual debt service. Most banks want to see at least a 1.25x. If your building brings in $125,000 a year after expenses and your mortgage is $100,000, you're at 1.25. If you can get that ratio up to 1.50x, you suddenly have bargaining power. You can tell the bank, "Look, this property is a cash cow. Why am I paying 7.5%?"
Wait.
There’s another thing. Relationship pricing. If you move your business operating accounts to the bank, they’ll often shave 0.25% off the rate. To them, your deposits are "cheap fuel" for their lending engine. It’s a trade-off. Is the 0.25% savings worth moving all your payroll and merchant processing? Sometimes.
Misconceptions That Kill Deals
People think commercial loans are like residential loans. They aren't. There's no "standard" 30-year fixed mortgage in the commercial world. It doesn't exist. Most conventional loans are "balloons." You might have a 20-year amortization (the schedule the payments are based on), but the loan is actually due in full after 5, 7, or 10 years.
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If you're at the end of a 5-year term and the conventional commercial loan rates have doubled since you started, you're in trouble. This is the "maturity wall" everyone is talking about in the news.
Also, the appraisal process is a nightmare. In residential, the appraiser looks at what the house next door sold for. In commercial, they look at the income. If your tenants are on month-to-month leases, the appraiser will "haircut" your income, which lowers the building's value, which raises your LTV, which—you guessed it—raises your interest rate.
The Outlook for 2026 and Beyond
We're in a "higher for longer" environment. The days of 3.5% commercial money are gone, and honestly, they probably aren't coming back anytime soon. The Fed is more worried about inflation than your cap rate.
That said, the market is stabilizing. We aren't seeing the wild 50-basis-point jumps every month like we did a couple of years ago. Lenders are starting to compete again, especially for "green" buildings or properties in medical and industrial sectors. If you're looking at a deal, you have to stress-test your numbers at a 8% rate. If the deal still makes money at 8%, buy it. If it only works at 6%, you're gambling.
Practical Steps to Secure Your Financing
Stop waiting for rates to "crash." They might dip, but they aren't going to crater. Instead, focus on what you can control.
- Clean up your Personal Financial Statement (PFS). If you have a bunch of nagging credit card debt or weird personal loans, kill them. Banks want to see liquidity. They love borrowers with "dry powder"—cash in the bank that can cover six months of mortgage payments if a tenant leaves.
- Audit your leases. If you have tenants with less than two years left on their lease, renew them now. A bank will give you a much better rate on a building with five-year leases than one with "at-will" tenants.
- Talk to a Mortgage Broker. Yes, they charge a fee (usually 1%). But a good broker knows which banks are "hungry" this month. They might find a tiny savings bank three counties away that has the best conventional commercial loan rates in the state because they need to diversify their portfolio.
- Negotiate the "Floor." Many loans have a rate floor. If interest rates drop to 2%, but your floor is 6%, you don't benefit. Try to negotiate that floor as low as possible.
The goal isn't just to get a loan; it's to get a loan that doesn't strangle your cash flow in three years. Be aggressive with your search but conservative with your math. That’s how you survive in commercial real estate.
Look at your current portfolio. Identify any "balloon" dates coming up in the next 18 months. If you have a reset coming, start talking to lenders now. Waiting until the last minute is the fastest way to get stuck with a "predatory" bridge loan rate while you scramble to find a conventional exit. Prepare your documentation early, keep your DSCR high, and remember that in the world of commercial lending, everything—including the interest rate—is a conversation, not a mandate.