How to Finance Commercial Real Estate
Financing commercial real estate in Salt Lake City involves more choices than residential, and the right structure affects returns, flexibility, and long term wealth creation in meaningful ways. The major categories cover almost every deal, and matching structure to situation separates investors who optimize returns from those who default to whatever the first lender offers.
Conventional commercial bank debt is the workhorse for investment property. Typical terms include 25 to 30 percent down, 5 to 10 year terms with 20 to 25 year amortization, and recourse with personal guarantees. Rates run 1 to 2 points above residential. Local Utah community banks and credit unions compete aggressively for commercial paper, which benefits borrowers willing to shop. Institutions like Zions Bancorporation, Mountain America Credit Union, Cyprus Credit Union, and several community banks across the Wasatch Front actively bid on qualified deals.
SBA 504 serves owner user buyers occupying more than 51 percent of the building. The 50/40/10 structure means a conventional first mortgage covers 50 percent, a certified development company covers 40 percent at a fixed rate for up to 25 years, and the buyer puts just 10 percent down. For a small business buying their operating location in Salt Lake City, SBA 504 preserves working capital while locking in long term fixed rate financing. Utah Certified Development Corporation serves as the SBA CDC for much of the state and has financed hundreds of commercial properties across the Wasatch Front.
SBA 7(a) provides more flexibility on use of proceeds, which helps when a deal includes equipment, working capital, or leasehold improvements alongside real estate. Rates are typically variable, tied to Prime. The program works for smaller owner user deals and for situations where the borrower needs more than just real estate financing.
Bridge debt funds value add plays that cannot qualify for conventional permanent debt yet. A building with significant vacancy or deferred maintenance often needs bridge financing during lease up and capital work, then refinances into permanent debt once stabilized. Rates run 2 to 5 points above conventional, and terms are short, typically 12 to 36 months. Bridge loans work for experienced buyers with clear stabilization plans. They punish buyers who underestimate timeline or cost.
Seller financing shows up more often in Salt Lake City than many buyers expect. A seller with significant equity and tax reasons to defer a lump sum gain can carry a note, often behind a conventional first. The buyer gets into the deal with less cash down. The seller gets income and installment sale tax treatment. It is common on older buildings where the seller has owned for decades.
Construction loans finance ground up projects or major renovations. They draw in stages as work progresses and convert to permanent debt at completion. Terms typically require 25 to 35 percent borrower equity measured against total project cost. Salt Lake City construction lending has been selective since 2022, with lenders prioritizing experienced sponsors and clear demand support.
Private lending fills gaps when institutional sources will not. Individual investors, family offices, and private lending funds across Utah participate in commercial lending, usually at higher rates in exchange for speed, flexibility, or willingness to underwrite situations other lenders decline. Relationships with private capital can be valuable for deals on tight timelines.
Mezzanine debt and preferred equity fill the space between senior debt and buyer equity on larger transactions. Rates run in the 10 to 15 percent range, but the capital lets sponsors do deals that would otherwise require too much of their own equity.
Omada Commercial, recognized as best commercial agents in Salt Lake City, works with borrowers across every financing category to match structure to situation. The right financing choice materially affects returns, and taking time to optimize typically saves real money.
