Money & Finance › Commercial real estate lending › Commercial real estate loans: how income property is financed
Bank balance-sheet loans from community and regional banks
· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
Loans a bank makes from its deposits and keeps on its own books, the most common financing for small and mid-size buildings.
See it on the Money & Finance map →How it works
Community and regional banks typically lend 60–75% of value at a 1.20–1.35x DSCR, for 5–10 years on 25-year amortization, then a balloon. Rates float over Prime or SOFR, fix for five years then reset, or fix through a swap. The owner signs a note, a deed of trust, a personal guarantee and often a deposit-relationship agreement, and sends yearly financials. At maturity the bank may renew, resize or call the loan; in default, it can modify a loan it holds itself.
Why it matters
Pros: flexibility, local decisions, mild step-down prepayment penalties and a lender who can renegotiate. Cons: recourse, shorter terms, covenants, and banks pulling back when regulators flag CRE concentration.
Facts, rules and data
Bank call reports and FDIC data, MBA figures showing banks held about 37% of CRE mortgage debt in 2025, bank term sheets, and the 2006 interagency CRE concentration guidance.
Debates and risks
Whether regional banks' heavy CRE exposure is a systemic risk or a manageable, well-reserved one is debated by regulators and analysts.
Inside this (1)
Connections (7)
▸Bank balance-sheet loans from community and regional banks are made and held by Commercial banks: taking deposits, making loansFact, law or data
The connection
A bank funds the loan from deposits and keeps it as an asset, earning the gap between the loan rate and what it pays depositors. Because it keeps the risk, it judges the owner as well as the building, and it can modify the loan itself instead of asking bondholders.
When and why
At thousands of US community and regional banks, which make much of the lending on smaller suburban buildings.
How we know
Bank call reports list each bank's CRE loans; MBA data show banks as the largest holders of CRE mortgage debt.
Debates and risks
Whether deposits, which can flee fast as in 2023, are a stable base for 10-year property loans is debated.
▸Bank balance-sheet loans from community and regional banks are a mainstay of many Community banks and credit unionsFact, law or data
The connection
For community banks, mostly under $10 billion in assets, CRE is the biggest loan type, and at many it exceeds three times capital. Credit unions also lend on property, but the law caps member business loans at 1.75 times net worth, so CRE is a smaller part of most credit unions' books.
When and why
Community banks across the US; the credit-union cap comes from the Credit Union Membership Access Act of 1998, eased by an NCUA rule in 2016.
How we know
FDIC community banking studies and call reports, and NCUA rules and data on member business lending.
Debates and risks
Regulators debate whether community banks' CRE concentrations are dangerous or simply the business they know best.
▸Bank balance-sheet loans from community and regional banks usually require Personal guarantees: full, limited and burn-offFact, law or data
The connection
A bank that keeps the loan wants a second source of repayment and an owner with skin in the game. So most bank CRE loans to smaller owners carry a personal guarantee, plus yearly financial statements and minimum net-worth and cash tests. Strong, low-leverage deals can negotiate limited or burn-off guarantees.
When and why
Standard practice at US community and regional banks; regulators' loan-grading guidance counts guarantor strength.
How we know
Bank term sheets and loan policies, and the 2023 interagency workout statement, which weighs guarantor support when grading CRE loans.
Debates and risks
How much guarantees are worth in practice is unclear; banks often settle for less than the full guaranty after a loss.
▸Bank balance-sheet loans from community and regional banks are often fixed through Swap loans: a floating bank loan fixed with an interest-rate swapFact, law or data
The connection
Banks fund with deposits whose rates move with the market, so a 10-year fixed loan would leave them exposed, the mismatch that sank many savings and loans. Lending floating and selling the borrower a swap gives the owner a fixed payment while the bank stays floating and earns a swap fee.
When and why
Common at regional and larger community banks in the 2010s and early 2020s, on loans of a few million dollars and up.
How we know
Bank loan documents and ISDA confirmations; banks report customer swap income in their financial statements.
Debates and risks
Whether a swap beats the bank's own fixed rate depends on hidden markups and future rates, and is hard to judge at signing.
▸Interagency CRE concentration guidance (2006): 100% and 300% tests flags banks heavily exposed to Bank balance-sheet loans from community and regional banksFact, law or data
The connection
Community and regional banks put a large share of their lending into CRE, so they are the ones that cross the 300% screen. Examiners then demand tighter limits and more capital. A bank near the line may slow new investor-property loans, widen spreads or require deposits, while owner-occupied loans, excluded from the count, stay easier to place.
When and why
US bank examinations since 2007, aimed mostly at community and regional banks; the issue returned in 2023–2024 as office values fell.
How we know
Fed and FDIC studies found concentrated banks failed more often in 2008–2011; public call reports let anyone compute a bank's ratio.
Debates and risks
Whether the screen simply pushes CRE lending toward debt funds and private credit, which face no such test.
▸SBA 504 loans: a bank first lien plus a CDC second lien pair a CDC second lien with Bank balance-sheet loans from community and regional banksFact, law or data
The connection
In a 504 deal a bank makes a conventional first-lien loan for about 50% of the project, with no SBA guarantee; at that low leverage it is a safe loan. The CDC's 40% second lien sits behind it. Banks also often provide short-term interim financing for the CDC share until the SBA-backed bond is sold.
When and why
Community and regional banks across the US act as the 504 first lender; the CDC is a local or regional nonprofit.
How we know
SBA's 504 rules and third-party lender agreements, plus bank call reports and CDC annual reports.
Debates and risks
How much the 504 structure lowers the bank's losses, compared with a conventional loan at 70–75% of value, is rarely measured publicly.
▸Prepayment penalties: step-down, yield maintenance, defeasance are usually lighter, step-down style, in Bank balance-sheet loans from community and regional banksFact, law or data
The connection
Banks hold their loans and fund with deposits, so they lose less when a loan pays off early. Their fixed loans usually carry a step-down penalty, such as 3-2-1 on a five-year loan or 5-4-3-2-1 on a ten-year; floating loans are often free to prepay. A swap loan's breakage cost, though, works like yield maintenance.
When and why
Common practice at US community and regional banks; terms are negotiated loan by loan.
How we know
Bank term sheets and loan agreements.
Debates and risks
Penalties are negotiable; whether a lower rate with a stiffer penalty is the better trade depends on how long the owner holds.