Using Community Bank Loans for CRE

Community banks, defined as locally owned banks that only serve a small geographic area, can be a valuable resource for commercial real estate investors. According to the FDIC’s 2020 Community Bank Survey, community banks held 30% of all CRE loans despite having only 12% of the banking industry’s total assets.

Community banks are a favorite, with more than double the loans you would expect them to fund. In this article, we review why, the benefits of partnering with a community bank for CRE loans, and a few things to consider before doing so.

Reasons To Use A Community Bank For CRE Loans

Community banks have several benefits that allow them to fight above their weight class when providing commercial real estate financing. Below are a few primary reasons you might want to use one for your own CRE loans.


Relationships are essential in the CRE world, which holds true for your banker. Unlike national banks with hundreds or even thousands of employees, community banks are relatively small and give you a better opportunity to build relationships with the people you are doing business with.

Once you’ve used a community bank for a few successful deals, you’ll better understand the decision-makers, what CRE lending criteria they are looking for, and the types of projects they are interested in funding. Plus, as long as you keep your word and make your payments, there’s a good chance a community bank will be more forgiving if you ever find yourself in a temporary bind.


Another benefit of the smaller size of community banks is their flexibility. Whereas national banks have to stick to specific CRE lending criteria that their lenders have little power to change, community banks don’t have to navigate the same level of bureaucracy.

For example, say you have a deal that you know will be a home run but doesn’t quite meet the metrics that your national banker requires. Instead of letting the deal fall apart, move on to a community bank, explain your reasoning and show why you think it’s a great deal. There’s a good chance the community bank will consider lending on the deal despite the missing metrics.

Not to say that community banks will lend on anything (they are still due diligence experts), but they are more likely to look at nontypical deals and craft loan options that will make the deal work.

Market Knowledge

Do you ever get tired of submitting the same market overview information every time you submit a loan request to a national bank? With a community bank, you won’t have to.

Community banks are deeply involved in the communities they serve, which gives them an extremely high level of market knowledge that would be difficult to replicate any other way. They know who the major players are, which areas of town are best and why an investor like yourself would be interested in investing in the area. They’ll also usually be able to refer you to the best contractors, inspectors, brokers, and surveyors in the area since there’s a good chance they all use the same bank.

Having a bank that truly understands the market you are investing in might seem like a small thing, but it can pay dividends when leveraged correctly.

Considerations To Make Before Using A Community Bank

Although there are a lot of benefits to using a community bank, there are also considerations that you should keep in mind. We’ve outlined the most notable ones below.

Different Loan Terms

If getting the lowest interest rate possible on your loan is your goal, you might not want to use a community bank. While community banks can typically offer competitive loan terms, you may find that they cannot match what the national banks are offering.

Community banks are working with a smaller amount of money than their national counterparts, so one bad loan or missed payment has a more considerable impact on their bottom line. To reduce the risk, community banks may charge a slightly higher interest rate, require a larger down payment or a shorter amortization period. This can especially be true if the bank is a portfolio lender and will be keeping the loan themselves.

There’s a good chance that the slightly inferior loan terms won’t outweigh the pros of working with a community bank, but it is still something to keep in mind.

Loan Size Restrictions

Depending on the size of the community bank and the dollar value of your investment, you might run across a situation where the bank isn’t able to loan you the amount of capital you need. Through no fault of their own, community banks have less money at their disposal to lend than larger, national banks.

Even if a community bank technically has enough money available to make the loan you need, it might unbalance the bank’s portfolio and make it too risky. If you anticipate encountering this issue based on your investments, a national bank is probably your best bet.

As with other financial institutions, even community banks have limitations and hurdles to overcome for CRE borrowers.

Limited Geographic Capabilities

As their name suggests, community banks are connected to a specific community. While this can be a pro regarding market knowledge, it can be a con if you are trying to invest outside of that community.

While a community bank might be willing to lend on a project in a nearby town or even a neighboring state, the further away you get from the bank’s primary business area, the harder it will be to make a deal work. Your local banker in Dallas might be willing to make you a loan on an office building in Austin, but they will probably be hesitant to issue a loan for a similar project in Seattle.

If you have plans to invest across the country (or even the world), a national bank will likely be better able to serve you.


We hope this article provides a good understanding of the benefits of partnering with a community bank for CRE loans.

Whether you are interested in using a community bank or think a national bank is right for you, Finance Lobby can help. Finance Lobby eliminates the inefficiencies of the CRE lending world. It makes it easier for commercial mortgage brokers and lenders to find each other and close on perfect-fit deals.

If you’d like to give Finance Lobby a try or know a commercial loan broker who would, it’s easy and free to sign up. Check out our blog if you’d like to learn more about Finance Lobby and other commercial real estate topics.

December 11, 2021