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Getting a Commercial Equity Line of Credit

Getting a Commercial Equity Line of Credit
Susan Guillory
Susan GuilloryUpdated April 19, 2023
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When you’re running a business, you may come up against unexpected expenses or an opportunity to grow your company. But without working capital to cover those costs, it can be challenging.If your business has substantial commercial property assets, one type of financing you might consider is a commercial equity line of credit, since it provides just the amount you need, when you need it.

What Is a Commercial Equity Line of Credit?

A commercial equity line of credit (CELOC) is a type of credit offered by banks and other lenders that allows businesses to use their commercial property as collateral for financing needs. These credit lines work in a similar way to other lines of credit. Rather than receiving a large lump sum of funds up front, you are approved for a maximum amount and then you can take out funds up to that max at any time. You pay back and owe interest only on what you have borrowed.Some lines of credit provide you with a debit card to spend the money or give you checks you can write, while others simply transfer the funds to your bank account.A commercial equity line of credit is generally secured by commercial property. In the event that the CELOC borrower defaults on the loan, the bank or lender can seize and sell that asset to cover the remaining balance.Lines of credit can be useful because sometimes you need some cash now and some later, particularly with something like a renovation project. You won’t have to take out multiple loans if you need more money over time; you simply borrow against your line of credit.Recommended: Business Loans vs Business Lines of Credit Compared 

Types of Property for Your Collateral

When securing a CELOC with commercial real estate, you’ll want to check with the lender to confirm the types of property they will accept. Generally, commercial property valued up to $5 million may be eligible. Common examples of what may be included:
  • Office
  • Retail
  • Warehouse
  • Multi-family
  • Light industrial
  • Mixed-use

Pros and Cons of a Commercial Equity Line of Credit

Like any type of financing, there are benefits and drawbacks to taking out a commercial equity line of credit.


One of the biggest benefits of a CELOC is the ability to have access to cash when you need it over time. Another benefit is that, while a line of credit functions like a credit card, providing you with access to revolving credit, it may have a lower interest rate than a business credit card.A commercial equity line of credit could also help you even out cash flow during slow seasons. If you know that sales grind to a halt over the summer, a line of credit could be a tool to help you keep afloat and cover your business expenses until sales pick back up again.In addition, a commercial equity line of credit can empower you to leverage business opportunities that arise. Maybe you have the opportunity to rent the commercial space next to your shop. Without access to capital, you might not have the funds to cover the extra rent and remodels needed.If you’re looking to build your personal or business credit, paying on your line of credit on time could help you do so, as long as that lender reports to one or more personal or business credit bureaus.


On the other hand, taking out a commercial real estate line of credit (or other financing) comes with costs. The interest rate you pay will depend on multiple factors, such as your credit scores, annual revenues, and the value of your property. In the case that the interest rate is high, it may not be worth it to pay that rate for access to capital, so consider whether you truly need the funding. And be sure to read the fine print: there may be extra fees, like for appraisals or late payments, that could quickly rack up.Should you become unable to pay off what you borrow, it could negatively impact both your personal and business credit scores, which may make it difficult later to qualify for other financing in the future. Also, having a large sum of money ready and waiting can be tempting. You might find it all too enticing to spend on unnecessary expenses, like a fancy espresso maker.

Commercial Equity Line of Credit Uses

So what can you use a business equity line of credit for? Pretty much anything that pertains to your business. A few examples of situations in which a CELOC could be useful:
  • To cover gaps in your cash flow when you’re waiting for clients to pay you
  • To pay for a larger inventory order so that you save what you spend per item 
  • For payroll, office expenses, office equipment, or remodeling
If you are a real estate investor, a commercial property line of credit will use the property you are purchasing as collateral, helping you get a lower rate on the CELOC. And you could use a commercial property equity line of credit to cover a purchase of property or land or for remodeling expenses.Recommended: Guide to Crowdfunding for Commercial Real Estate

Who Is a Commercial Equity Line of Credit Good for?

If you need short-term financing and expect to need funds over time, rather than all at once, a line of credit could be an option to consider. Whether you have a slow period that you need to cover expenses for or are looking for capital for a real estate investment, a CELOC provides steady access to cash that is available when you need it.

Qualification Factors

Each lender will have slightly different requirements for applicants, and some require you to be an existing bank customer for at least six months.Getting your finances in order is a good first step if you are interested in applying for any small business loan, including a line of credit. Lenders may require businesses to have a certain yearly revenue or time in business, and you may be asked for your profit and loss statement, tax returns, or other financial documents.Additionally, lenders may require applicants meet a minimum credit score requirement.But one of the most important qualifications is the collateral. Generally, the higher the value of the commercial real estate you’re using for your asset, the more you will qualify for. Some lenders will determine the amount you qualify for based on the value of the property.Recommended: Minimum Credit Scores for Business Loans

Where to Find a Commercial Equity Line of Credit

Start simply: see if the bank you already do business with offers a commercial equity line of credit. Since some lenders require CELOC borrowers to be existing customers, this may be an important consideration.But that’s not your only option. There are also lenders who specialize in commercial equity lines of credit, and some online lenders may be more willing to work with you if you have less-than-excellent credit. Potential borrowers with a credit score on the lower score of the spectrum, however, may qualify for a higher interest rate.Recommended: Buying Commercial Property

The Application Process

Before applying for a line of credit, calculate how much you need, both immediately and down the road. Calculate cash flow to see how long you can operate with what you have, then determine how much you want to ask for. Keep in mind that you will be paying on your CELOC as soon as you borrow from it. As you repay the funds, it frees up more of your line, so you may not need a line of credit for as large a sum as you may originally think. A more moderate sum may suffice if you continually pay back what you’ve used and then take out more.Applications will generally ask for some basic information about both you as the business owner and the business itself, including:
  • Name, address, phone number
  • Date business was established
  • Employer identification number or Social Security number
  • Name of all owners and their personal details
  • Gross revenue
  • Details on bank accounts and current loans
If you are using your commercial property as collateral, you may also be required to provide details on it, including:
  • Property type
  • Address
  • Current market value
  • Loan balance if you have a mortgage on it
Depending on lender requirements, you may be asked to submit additional financial documents:
  • Business and personal tax returns
  • Balance sheet
  • Profit and loss statement
  • Schedule K-1
  • Personal financial statement

Finding A Commercial Equity Line of Credit

If you own commercial property and also need access to working capital, you may be able to leverage your asset with a commercial equity line of credit. Be sure to shop around, as interest rates and terms can vary from one lender to another, based on your qualifications.Looking for a small business loan? With Lantern by SoFi’s lending marketplace, it’s easy to search for different types of financing (including short-term loans and business lines of credit) all in one place. You only fill out one short application and don’t need to make any type of commitment.Let Lantern match you with the right financing solution for your small business.

Frequently Asked Questions

What is a commercial equity line of credit?
Can you take a HELOC on commercial property?
Can I get an equity line of credit?
Is an equity line of credit a good idea?

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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