What is a commercial equity line of credit?

A commercial equity line of credit (CELOC) is a revolving credit facility secured by a lien on commercial real estate the business owns. It is structurally similar to a home equity line of credit (HELOC) — a credit limit, a draw period, a repayment period, and a variable rate — but the collateral is the business's commercial property rather than a personal residence. Because the credit is secured by hard real estate collateral, lenders can offer larger credit limits and lower rates than unsecured business lines. This is general education, not financial advice; whether a CELOC is appropriate depends on your specific property, debt structure, and business situation.

How the credit limit is calculated

The credit limit is determined by the combined loan-to-value (CLTV) ratio on the property. Most commercial lenders allow a CLTV of 65–80% for a CELOC: the appraised value of the property multiplied by the CLTV ceiling, minus the balance of any existing first mortgage, equals the maximum credit line. For example: a property appraised at $1,000,000, with an existing $400,000 mortgage, at a 75% CLTV ceiling, yields a maximum CELOC of $350,000 ($750,000 minus $400,000). The appraisal must be a full commercial appraisal (USPAP-compliant, ordered by the lender) — not an owner estimate.

How it's underwritten

• Property type: Owner-occupied commercial property (office, warehouse, retail, light industrial) qualifies most readily. Investment/rental commercial properties face stricter underwriting and are sometimes excluded.
• DSCR: Lenders evaluate both the property's own income coverage and the business's overall debt-service-coverage ratio. Most require DSCR ≥ 1.20x after the CELOC is drawn.
• FICO: 650–680 minimum at most commercial lenders; 700+ accesses the best pricing tiers.
• Time in business: Typically 2+ years of operating history with filed tax returns.
• Environmental and title: Commercial liens require a title search and, for certain property types, a Phase I environmental assessment.

Draw period and repayment

CELOCs typically have a draw period of 5–10 years during which you can borrow, repay, and re-borrow against the line — paying interest only on the drawn balance. After the draw period, the line either converts to a fixed-term amortizing loan or the full outstanding balance becomes due. Variable rates on commercial lines are typically indexed to the prime rate or SOFR plus a margin (commonly prime + 1–3%). Because commercial property pledged as collateral creates a second or first lien on the real estate, defaulting on a CELOC can result in foreclosure of the commercial property. Review all lien-priority implications with a commercial attorney before signing.

When a CELOC makes sense

A commercial equity line of credit works best as a flexible working capital facility for businesses that own real estate and have equity to tap — seasonal inventory purchases, equipment deposits, bridge financing between receivables, or managing a slow quarter. It is generally not appropriate as a substitute for permanent capital investment (use a term loan for that) or as collateral for a sinking business (drawing down property equity to cover operating losses accelerates foreclosure risk, not liquidity). One application routes your file to the funding partners best matched to your property profile and business financials. Apply with ClearValue Lending. ClearValue Lending is a funding platform, not a lender or financial advisor.