Bank Loans vs Private Lenders for Commercial Real Estate
Banks win on rate. Private lenders win on speed and flexibility. Most deals fit one side clearly once you know your timeline.
Cheap and Slow, or Fast and Flexible
Banks offer the lowest rates in commercial real estate. Private lenders offer speed and flexibility banks cannot match. Most deals fit one side clearly, and knowing which side yours is on saves weeks of wasted effort.
The right choice comes down to your timeline, your documentation, and the condition of the property.
How Bank Loans Work
Banks lend from their own balance sheet and price accordingly. Rates are the lowest available, often several points under private capital. In exchange they want strong credit, usually 680 or higher, 20 to 25% down, and full documentation. Most bank loans are recourse.
The trade is time and rigidity. A bank commercial loan commonly takes 45 to 90 days to close, and the property generally needs to be stabilized and in good condition. If the deal fits the box, the bank wins on cost.
How Private Lenders Work
Private lenders, including debt funds, family offices, and specialty shops, price for speed and flexibility. Rates typically run 9 to 13% with points, and terms are shorter. Leverage and structure are negotiable in ways a bank cannot match.
They can close in 10 to 21 days and will fund properties a bank will not touch, like a value-add deal or a building mid-repositioning. Underwriting leans on the asset and the plan, so a messy tax return is less of a roadblock.
Rate, Speed, and Flexibility Comparison
The contrast at a glance:
- Rate: banks lowest, private lenders 9 to 13% plus points
- Speed: banks 45 to 90 days, private lenders 10 to 21 days
- Credit: banks want 680 plus, private lenders more forgiving
- Property condition: banks want stabilized, private lenders fund value-add
- Recourse: banks usually recourse, private lenders often flexible
- Term: banks longer permanent debt, private lenders short-term
When to Choose a Bank Loan
Choose a bank when the property is stabilized, your credit and documentation are strong, and you are not racing a clock. The lower rate is the biggest lever on total cost, and over a 5 to 10 year hold the savings dwarf a few weeks of extra process.
Banks also reward relationships. If you keep deposits and run other business through the bank, you can often earn pricing and terms a private lender will not offer.
When to Choose a Private Lender
Choose a private lender when speed or flexibility decides the deal. A time-sensitive acquisition, a property that needs work before it qualifies for a bank, or a borrower who cannot document income cleanly all point to private capital.
The higher rate is the price of certainty and speed. Many borrowers use a private loan to close now, execute the plan, then refinance into a bank once the property and the file are ready.
How CapitalAx Bridges Both
CapitalAx sits between you and more than 350 lenders, bank and private alike. We quote both on the same deal, show the real cost and timeline of each, and route the file to whichever clears fastest at the best terms. With a range of $20K to $500M, we place bank and private debt on everything from small owner-occupied buildings to large repositioning plays.
Frequently Asked Questions
Are private lenders more expensive than banks?
Yes, on rate. Private lenders typically charge 9 to 13% plus points, while banks offer the lowest rates in the market. You pay the premium for speed, flexibility, and a willingness to fund deals or borrowers a bank would decline. The extra cost is often worth it on a short hold.
Why do private lenders close faster?
Private lenders underwrite the asset and the business plan rather than running a full institutional credit process. Fewer committees and less bureaucracy mean a close in 10 to 21 days versus the 45 to 90 days a bank commonly needs. Speed is the main reason borrowers pay the higher rate.
Can I refinance from a private loan into a bank loan?
Yes, and it is a common strategy. Borrowers use private capital to close quickly and complete the business plan, then refinance into a lower-rate bank loan once the property is stabilized and their documentation supports it. Line up the exit before you take the short-term loan.
Do banks always require recourse?
Most bank commercial loans are recourse, meaning you personally guarantee repayment. Some banks offer non-recourse on strong, stabilized properties at lower leverage. Private lenders are often more flexible on recourse, which is another reason borrowers choose them for certain deals.