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The following is a fictional story created for illustrative purposes. While the characters are not real, their journey reflects the goals and challenges many business owners in our communities face.
Meet Grace. For five years, she’s poured her heart into her farm-to-table café in a leased storefront in Jackson, New Hampshire. The restaurant is a local favorite, bustling with regulars and tourists enjoying the Mount Washington Valley. Now, her landlord is retiring and has offered to sell her the entire building—her café space plus two apartments upstairs.
Grace’s dream of owning her property is suddenly within reach, but the path forward seems daunting. How does the world of business real estate financing work? She finds herself asking a common question: exactly how to get a commercial property loan?
This is a pivotal moment that many successful business owners across New Hampshire and Vermont face. You’ve built a thriving enterprise, and now you have the opportunity to invest in its future by owning its home. This guide will walk you through the journey from tenant to owner.
The Turning Point: Signs You’re Ready to Buy
Like many business owners at this crossroads, Grace is asking herself, ‘Is this the right time for such a big move?’ The answer often lies in a few key signs that a business is ready to transition from leasing to owning.
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- She Craves Stability and Control: Grace has dreamed of expanding her kitchen for years, but couldn’t justify the investment in a building she didn’t own. For her, the thought of finally having the freedom to renovate without asking for a landlord’s permission is a powerful motivator. Owning the building means her location is secure, free from the threat of a lease not being renewed or a sudden, dramatic rent hike.
- She Wants to Build Equity, Not Just Pay Rent: She considers the thousands of dollars she’s paid in rent over the last five years—money that’s gone forever. By purchasing the building, each monthly payment becomes an investment in her future, building equity in an asset that grows in value. The rental income from the two apartments upstairs would not only help cover her commercial mortgage but would also build her equity even faster, turning a major expense into a source of revenue.
- Her Business is Strong and Stable: Most importantly, Grace can only consider this step because her café is a proven success. She has five years of consistent revenue and healthy cash flow from a loyal customer base that loves her food. This track record is the single most important sign that she’s ready. It gives her the confidence—and the financial standing—to turn the dream of ownership into a viable plan.
With her “why” clearly established, Grace’s next step is to understand the “how”—the world of commercial real estate loans.
What Is a Commercial Real Estate (CRE) Loan?
At its core, a commercial real estate (CRE) loan is a mortgage for a property intended for business purposes rather than as a personal residence. For business owners like Grace, it’s a powerful tool to transition from renting to owning. Businesses across Vermont and New Hampshire use CRE loans to:
- Purchase the building they currently operate in.
- Buy office spaces, retail locations, or industrial warehouses.
- Acquire mixed-use properties, like the one Grace is considering with apartments upstairs.
- Finance new construction or significant renovations.
How Are Commercial Real Estate Loans Different from a Residential Mortgage?
As Grace begins her research, she quickly learns that financing a commercial property isn’t the same as buying a home. Key differences include:
- Loan Structures and Terms: Commercial loans typically have shorter repayment terms than the standard 30-year residential mortgage. Terms of 5, 10, or 20 years are common.
- Down Payment Requirements: The down payment for a CRE loan is typically higher, usually ranging from 20% to 30% of the purchase price.
- Eligible Properties: These loans cover a wide range of properties, including office buildings, storefronts, medical centers, apartment complexes, and industrial sites.
- Approval Criteria: Lenders focus heavily on the business’s financial health, including its revenue, cash flow, and future projections, in addition to the owner’s credit.
Exploring Your Loan Options
When Grace sits down with her banker, she learns she has several potential paths to financing her building. The right choice depends on the specific needs of the business.
- Conventional Commercial Loans: This is the most common type of loan, offered directly by a bank like Union Bank. They offer competitive rates and are tailored by the local lender to fit the borrower’s unique situation.
- SBA 504 Loans: This program, backed by the Small Business Administration (SBA), is designed to promote business growth and job creation. SBA 504 loans are used to finance fixed assets, such as real estate or major equipment. They often feature lower down payments and long, fixed-interest rate terms, making them a very attractive option.
- SBA 7(a) Loans: The 7(a) is the SBA’s most flexible loan program. While it can be used to purchase real estate, the funds can also be used for working capital, refinancing debt, or buying a business. It’s a versatile tool for business owners with multiple needs.
- Construction Loans: If you plan to build from the ground up, or perform renovations to an existing property, a construction loan provides short-term financing to cover the costs of building. Once construction is complete, this loan is typically converted into a longer-term commercial mortgage.
How to Get a Commercial Property Loan: The Application Process Explained
Once Grace decides to move forward, she begins the formal application process. Knowing what to expect can make the journey feel much more manageable.
Step 1: The Initial Conversation and Document Gathering
This first phase is about preparing your financial story. Your lender will provide a checklist of documents, which typically represent the core commercial loan requirements. Be prepared to gather:
- Several years of business and personal tax returns
- Up-to-date financial statements (Profit & Loss, Balance Sheet)
- A detailed business plan and projections
- Personal financial statements for all owners
Step 2: Formal Application and Underwriting
With your documents submitted, the bank’s underwriting team begins its review. This is a deep dive into your business’s financial health, cash flow history, and creditworthiness to ensure you can comfortably support the loan payments.
Step 3: The Third-Party Property Appraisal
The bank will order an appraisal from an independent, licensed commercial appraiser. Their job is to determine the property’s market value, which is crucial for verifying that the property is sufficient collateral for the loan.
Step 4: The Commitment Letter
Once the loan is approved, the bank will issue a commitment letter which is a formal offer that outlines the specific terms, interest rate, and conditions of your loan. This is a moment to celebrate—you’re officially on the home stretch!
Step 5: Due Diligence
Once approved and you have agreed to move forward with the financing, the bank will often work with an attorney to research the title to the property, obtain flood determinations on the property as well as environmental screens. These are all done to be sure that the property you are acquiring does not have any avoidable issues.
Step 6: Closing
The final step is the closing, where both parties sign all legal documents, and the funds are transferred to the seller. At this point, Grace gets the keys to her building and officially becomes a commercial property owner.
The Advantage of a Local Lending Partner
When Grace started exploring her options, she realized she needed a banker who understood the Mount Washington Valley market—its seasonal tourism, its year-round community, and the value of a mixed-use property like the one she wanted to buy.
At Union Bank, we don’t just finance buildings; we are a trusted advisor and invest in local dreams. Our commercial lending team lives and works in Vermont and New Hampshire. We make our decisions locally and are dedicated to finding creative, flexible solutions to help businesses like yours succeed. We’ll sit down with you to understand your story, your business, and your vision for the future.
For business owners from Burlington to Jackson, owning your property is the ultimate expression of permanence and success. It’s a big step, but you don’t have to take it alone.
Ready to explore your options for a commercial real estate loan? Contact our experienced commercial lending team today to start the conversation.
