Getting a commercial real estate loan with bad credit might feel impossible, but it is far from it. While traditional banks set strict credit score thresholds, alternative lenders focus on the deal itself, the property's income potential, and your equity position rather than a three-digit number on your credit report.
Whether your credit took a hit from a business downturn, medical expenses, or a previous foreclosure, options exist. Hard money lenders, DSCR programs, and private capital sources fund billions in commercial real estate annually for borrowers who fall outside conventional lending guidelines.
This guide breaks down every viable path to financing commercial property with a credit score between 500 and 650, including the rates you can realistically expect, the deal structures that get approved, and the steps you can take right now to strengthen your position.
Talk to a Clearhouse Lending advisor about your financing options
Need Financing for This Project?
Stop searching bank by bank. Get matched with 6,000+ vetted lenders competing for your deal.
What Credit Score Do You Need for a Commercial Real Estate Loan?
The answer depends entirely on the type of lender you approach. Traditional banks and credit unions typically require a minimum credit score of 680 to 700 for commercial real estate loans. Borrowers with scores below 660 are almost universally declined by conventional lenders, according to NerdWallet's commercial lending guide.
Alternative lenders tell a different story. Hard money lenders commonly work with borrowers scoring 580 or above, and some private lenders have no minimum credit score requirement at all. DSCR loan programs typically start at 620, though specialized lenders extend programs down to 580 with compensating factors like a higher down payment or stronger property cash flow.
The key distinction is what drives the underwriting decision. Banks underwrite the borrower. Alternative lenders underwrite the deal. If your property generates strong income and you bring adequate equity, your credit score becomes one factor among many rather than the single deciding qualification.
How Do Hard Money Loans Work for Borrowers with Bad Credit?
Hard money loans are the most accessible financing option for commercial real estate investors with bad credit. These loans are funded by private investors or lending companies that base their decisions primarily on the property's value and the borrower's equity position, not personal credit history.
Here is how hard money lending works in practice. A hard money lender evaluates the property's current value (and often its after-repair value for renovation projects), then offers a loan based on a percentage of that value. Typical loan-to-value ratios range from 60% to 75%, meaning you need 25% to 40% as a down payment or existing equity.
For borrowers with credit scores between 580 and 650, hard money interest rates typically range from 10% to 14%, with origination fees of 2 to 4 points. Loan terms are short, usually 12 to 36 months, making hard money ideal for bridge financing, value-add projects, and acquisitions where you plan to refinance into a permanent loan once the property is stabilized.
Clearhouse Lending works with a network of hard money lenders who specialize in commercial properties. The approval process focuses on these four factors.
Hard money is not cheap, but it gets deals done when other options are unavailable. For an investor who identifies a $2 million commercial property generating $180,000 in net operating income, the cost of a hard money loan at 12% is manageable when the property's cash flow supports the debt service and the exit strategy is clear. The higher cost of capital is simply the price of entry for borrowers who cannot access conventional financing today.
What Are DSCR Loans and Why Do They Help Bad Credit Borrowers?
DSCR (Debt Service Coverage Ratio) loans are purpose-built for real estate investors. Instead of verifying your personal income, tax returns, or employment history, DSCR lenders qualify you based on the property's rental income relative to its debt payments.
The formula is straightforward: divide the property's net operating income by the total annual debt service. A DSCR of 1.25 means the property generates 25% more income than needed to cover the loan payments. Most DSCR lenders require a minimum ratio of 1.0 to 1.25, though programs for lower ratios exist with compensating factors.
As of early 2026, DSCR loan rates have dropped to the 6.12% to 6.62% range for well-qualified borrowers. For borrowers with credit scores in the 580 to 650 range, expect rates closer to 8% to 10%, which still represents a significant savings compared to hard money.
The credit score minimums for DSCR loans vary by lender. Here is the general breakdown.
Clearhouse Lending offers DSCR loan programs designed specifically for real estate investors, including those with credit challenges. DSCR loans make particular sense for income-producing properties like multifamily buildings, retail centers, and mixed-use properties where documented rental income can carry the loan. Use our DSCR calculator to see if your property qualifies before applying.
Can You Get a Private Money Loan with a Credit Score Below 600?
Yes. Private money lenders are individuals or small firms that lend their own capital, giving them complete flexibility over approval criteria. Unlike institutional lenders who must follow regulatory guidelines, private lenders can approve loans based purely on the strength of the deal.
In 2025 and 2026, alternative lenders including debt funds and mortgage REITs captured 37% of non-agency commercial loan closings, outpacing traditional banks at 31% and life insurance companies at 16%. This shift has expanded access significantly for borrowers with imperfect credit.
Private money loan terms for bad credit borrowers typically look like this.
The trade-off with private money is cost versus access. You will pay more in interest and fees, but you gain the ability to close deals that banks simply will not fund. For time-sensitive acquisitions or properties that need repositioning, private money can be the difference between capturing an opportunity and watching it go to another buyer.
Many borrowers use private money as a bridge strategy: acquire the property, stabilize operations or complete improvements, build credit over 12 to 24 months, then refinance into a conventional or DSCR loan at significantly better terms.
Will the SBA Approve a Commercial Loan with Bad Credit?
The Small Business Administration does not set an official minimum credit score for its loan programs, but the reality is more nuanced. SBA lenders, which are banks and credit unions using SBA guarantees, typically require personal credit scores of 650 or higher for the 7(a) program and 680 or higher for the 504 program.
However, the SBA allows lenders to consider compensating factors that can offset a lower credit score. According to the SBA's lending guidelines, these compensating factors include strong business cash flow history, significant collateral beyond the financed property, substantial borrower equity (30% or more), industry experience of 5 or more years, and a clear explanation for past credit issues.
For the FICO Small Business Scoring Service (SBSS) score used in SBA pre-screening, the minimum threshold is 165 on a scale of 0 to 300. Some lenders will accept scores in the 155 to 165 range with strong compensating factors, according to Nav's SBSS guide.
The bottom line on SBA loans: they are possible with bad credit but significantly harder to secure. If your credit score is below 620, your time is better spent pursuing hard money or DSCR options first, then refinancing into an SBA loan after improving your credit.
What Does a Real Deal Structure Look Like for a 600 Credit Score Borrower?
Theory is helpful, but real numbers tell the story. Below are two deal structures that represent typical transactions Clearhouse Lending arranges for borrowers with credit scores in the 580 to 650 range.
Scenario 1: Multifamily Acquisition with Hard Money
A borrower with a 605 credit score identified a 12-unit apartment building listed at $1.4 million. The property was generating $156,000 in annual gross rent with a net operating income of $98,000. The borrower secured a hard money loan at 65% LTV ($910,000) at 11.5% interest with a 24-month term. The borrower contributed $490,000 in equity. Monthly debt service was approximately $8,720, and the property's monthly NOI of $8,167 nearly covered the payment. The borrower's plan was to make capital improvements, raise rents by 15%, and refinance into a DSCR loan within 18 months.
Scenario 2: Retail Property with Private Money
A borrower with a 585 credit score found a single-tenant retail building leased to a national credit tenant for $2.1 million. The NNN lease generated $168,000 annually. A private lender funded 60% LTV ($1.26 million) at 10.5% for 36 months. Despite the borrower's low credit score, the national tenant's creditworthiness and the long lease term (8 years remaining) made this an easy approval.
Get a customized deal structure for your commercial property
How Can You Improve Your Credit Score Before Applying?
Even a modest improvement in your credit score can significantly reduce your borrowing costs. Moving from 580 to 640, for example, can save 2 to 3 percentage points on your interest rate, which translates to tens of thousands of dollars over the life of a loan.
Here are the most impactful steps you can take, ranked by their effect on your credit score.
The timeline for meaningful credit improvement depends on your starting point. Correcting reporting errors can boost your score within 30 to 45 days. Paying down revolving balances shows results in 60 to 90 days. Resolving collections or charge-offs may take 90 to 180 days to fully reflect.
While you work on improving your credit, you do not have to wait to invest. Use the strategies outlined earlier, such as hard money or private money, to acquire properties now. Then refinance into better terms as your score improves. This dual-track approach lets you build your portfolio and your credit simultaneously.
What Should You Watch Out for When Borrowing with Bad Credit?
Borrowing with bad credit for commercial real estate carries higher costs and unique risks. Understanding these pitfalls upfront helps you structure deals that succeed rather than compound your financial challenges.
Prepayment penalties are common in alternative lending. Some hard money and private lenders charge penalties of 2% to 5% of the loan balance if you pay off the loan early, which can eat into your refinancing savings. Always negotiate prepayment terms before closing.
Personal guarantees are almost universal for bad credit borrowers. Unlike investment-grade borrowers who may qualify for non-recourse loans, borrowers with credit below 650 should expect to sign a personal guarantee on their commercial real estate loan. Understand what this means for your personal liability before signing.
Balloon payments create refinancing risk. If your 24-month hard money loan matures and your credit has not improved enough to qualify for a permanent loan, you may face a forced sale or an expensive extension. Build a realistic timeline for your exit strategy and add a cushion.
How Does Bad Credit Commercial Lending Compare Across Loan Types?
Choosing the right loan type is just as important as finding a lender willing to work with your credit profile. Each option carries different costs, terms, and qualification criteria. This side-by-side comparison helps you identify which path fits your specific situation.
The best choice depends on your property type, investment timeline, and available capital. For quick acquisitions and value-add plays, hard money or bridge loans provide speed and flexibility. For stabilized income properties, DSCR loans offer better rates and longer terms. For business owners occupying their property, the SBA route, while harder to access, delivers the lowest long-term cost.
Use our commercial mortgage calculator to compare monthly payments across these loan types for your specific deal.
Schedule a free consultation to explore your commercial lending options
What Steps Should You Take Right Now to Get Funded?
Getting a commercial real estate loan with bad credit requires a strategic approach. Follow this process to maximize your chances of approval and secure the best terms available for your situation.
The commercial lending landscape has shifted dramatically in favor of borrowers with imperfect credit. Alternative lenders now fund more commercial real estate transactions than traditional banks, and the focus continues to move toward deal quality over borrower credit profiles. With over $936 billion in commercial mortgages maturing in 2026 according to the Mortgage Bankers Association, the supply of available capital sources continues to expand as lenders compete for performing deals. The opportunity is real, but preparation and the right lending partner make all the difference.
What Are the Most Common Questions About Bad Credit Commercial Loans?
What is the lowest credit score accepted for a commercial real estate loan?
Some private money lenders and hard money lenders have no minimum credit score requirement, approving loans based entirely on the property's value and the borrower's equity position. Among lenders that do set minimums, the lowest thresholds are typically around 550 to 580 for hard money programs and 580 to 620 for DSCR loans. Traditional bank loans generally require 660 or higher.
Can I get a commercial loan with a bankruptcy on my record?
Yes, but your options narrow and costs increase. Most hard money and private lenders will consider borrowers with a discharged bankruptcy, particularly if it is more than 2 years old. DSCR lenders typically require at least 2 to 4 years of seasoning after a bankruptcy discharge. SBA lenders generally want 3 or more years and a demonstrated pattern of re-established credit.
How much more will I pay in interest with bad credit?
The premium varies by loan type and severity of credit issues. Generally, borrowers with credit scores in the 580 to 650 range pay 2% to 6% more in interest compared to borrowers with 700-plus scores. On a $1 million loan, that translates to $20,000 to $60,000 more per year in interest expense. This premium narrows significantly as you refinance into better loan products over time.
Do I need a larger down payment with bad credit?
Almost always. While conventional commercial loans may require 20% to 25% down for borrowers with strong credit, bad credit borrowers should expect to bring 25% to 40% down depending on the loan type and property. Higher down payments reduce the lender's risk exposure and often result in better interest rates.
Can I use a co-signer or guarantor to offset my bad credit?
Some lenders allow a creditworthy co-signer or guarantor to strengthen the application. This is more common with SBA loans and some DSCR programs. The co-signer's credit, income, and net worth are considered in the underwriting, which can help you qualify for better terms. However, the co-signer takes on personal liability for the loan, so this arrangement requires careful consideration.
Is it better to fix my credit first or get a loan now?
This depends on the opportunity. If you have identified a strong deal with favorable pricing, waiting 6 to 12 months to improve your credit could cost you the opportunity. The better strategy is often to secure financing now through alternative lenders and then refinance into better terms as your credit improves. If no immediate deal is on the table, investing 3 to 6 months in credit repair before shopping for loans can save you significant money.
Sources: NerdWallet Commercial Real Estate Loan Rates, DSCR Loan Complete Guide 2025, Nav FICO SBSS Score Guide, Agora Real Estate Lending Trends, North Coast Financial Hard Money Rates, Commercial Real Estate Loans Guide