CELOCs Explained: The Smart Way to Tap Commercial Property Equity

A commercial equity line of credit (CELOC) allows business owners and property investors to tap into the equity of their commercial real estate. While traditional HELOCs for residential properties are more common, most don’t extend to commercial property.

CELOCs can provide businesses with the financial flexibility to renovate, expand, or manage cash flow gaps. A commercial credit line is similar to a HELOC, offering a revolving line of credit secured by the equity in your commercial property. Below, we’ll cover how CELOCs work, their eligibility requirements, and whether they’re the right financing option for your business needs.

Table of Contents

1. How does a CELOC work?
2. 3 CELOC lenders
3. Eligibility requirements for a CELOC
4. Pros and cons of a CELOC
5. How to apply for a CELOC
6. Alternatives to a CELOC

How does a CELOC work?

A CELOC is similar to a HELOC but tailored to properties such as office buildings, warehouses, multifamily units, and retail spaces.

Unlike a traditional HELOC, CELOCs often have stricter requirements, higher interest rates, and more limitations depending on the lender and the type of commercial property. If you’re considering leveraging your commercial property’s equity, it’s essential to understand how CELOCs differ from other financing options.

A CELOC provides a revolving line of credit secured by commercial property. Businesses can borrow as needed during the draw period, make interest-only payments on the borrowed amount, and repay the principal later. Here’s a breakdown of the phases:

Borrowers can use CELOCs for various purposes, such as managing business expenses, upgrading rental properties, or expanding operations. However, they must plan for the repayment phase to avoid foreclosure risks.

3 CELOC lenders

These well-known lenders offer commercial lines of credit, although only U.S. Bank’s product is secured by real estate.

Lender	Product	Rates (APR)*
U.S. Bank	Business equity line of credit (use real estate as equity)	Not disclosed
Wells Fargo	Prime line of credit (secured by business assets)	Starting at 8.25%
PNC Bank	Secured small business line of credit (secured by non-real-estate assets)	Not disclosed

Eligibility requirements for a CELOC

Lenders offering CELOCs evaluate the property and the borrower to determine eligibility. General requirements include:

Pros and cons of a CELOC

Pros

• Flexible access to funds

• Pay interest only on borrowed amounts

• Revolving credit line allows reuse of repaid funds

• Suitable for long-term projects and large expenses

Cons

• Higher interest rates than traditional business loans

• Variable rates can lead to unpredictable payments

• Potential foreclosure risk if repayments are missed

• Fewer lenders offer CELOCs compared to HELOCs

CELOCs have the same risks as HELOCs: losing the property you put up for collateral and credit score damage.

They also come with greater risks to employees, who could lose their jobs if the CELOC causes increased financial problems and leads the company into bankruptcy or going out of business.

To mitigate these risks, do your due diligence, and consider hiring a business consultant who is well-versed in the area to offer guidance through the process. I would not suggest proceeding without professional help and due diligence. The risk is too great for yourself, your employees, and the company.

How to apply for a CELOC

Applying for a CELOC requires careful preparation. Follow these steps to improve your chances of approval:

1. Evaluate your financial situation: Determine whether your business cash flow and property equity support taking on a CELOC.
2. Research lenders: Compare rates, fees, and terms from multiple lenders.
3. Gather documentation: Collect financial statements, tax returns, and property appraisals.
4. Submit an application: Provide business and property details through your chosen lender’s application process.

Alternatives to a CELOC

If a CELOC doesn’t meet your needs, consider these alternatives:

Traditional business loans

• Offers fixed repayment terms and predictable payments.
• May be better suited for one-time expenses.

Check out our resource on the best small business loans.

Read More

How Do Small Business Loans Work?

Cash-out refinance

• Replaces your mortgage with a larger one, providing the difference in cash.
• Typically offers lower rates than a CELOC.

See our highest-rated cash-out refinance lenders.

Read More

Cash-Out Refinance vs. Home Equity Loan

Bridge loans

• Short-term financing for property purchases or upgrades.
• Ideal for covering gaps until permanent financing is secured.

Read More

Bridge Loans for Fix-and-Flip Properties; HELOC vs. Bridge Loan

Business credit cards

• Useful for smaller, ongoing expenses.
• Higher interest rates but more accessible than a CELOC.

Recap of lenders that offer CELOCs

Lender	Product	Rates (APR)*
U.S. Bank	Business equity line of credit (use real estate as equity)	Not disclosed
Wells Fargo	Prime line of credit (secured by business assets)	Starting at 8.25%
PNC Bank	Secured small business line of credit (secured by non-real-estate assets)	Not disclosed