Every commercial mortgage quote in California is built the same way: a lender starts with a published index and adds a spread reflecting the risk of your transaction. The index is public, moves daily, and is identical for every borrower in the state. The spread is not, and it is where almost all of the difference between two quotes on the same building lives. For the macro view of what moves the underlying indexes, our article on how interest rates affect commercial financing covers that ground.
This page is narrower. Rather than advertise a number, it explains how commercial real estate loan rates in California are built, product by product: which index each loan type prices from, what widens or tightens the spread, and what to normalize before deciding one quote beats another.
The three index bases California lenders quote from
Nearly every commercial loan written in the state prices off one of three reference rates, and which one sits under a quote says more than the headline number does.
The Prime Rate
Prime is a bank-set benchmark that tracks the Federal Reserve’s policy target and reprices the day the Fed acts. It is the base for most SBA 7(a) variable-rate loans, small-balance bank debt and revolving lines, so reset language in the note matters as much as the spread.
SOFR and Term SOFR
SOFR is the secured overnight rate that replaced LIBOR, and one-month and three-month Term SOFR are what floating-rate lenders actually quote. Bridge, private money, construction and much floating bank paper price off it. Two features matter as much as the spread: the index floor, and whether a rate cap must be purchased at closing.
The 10-year US Treasury
Long fixed-rate money keys off the Treasury curve. CMBS conduit loans, life company loans and most long fixed bank loans are quoted as a spread over the 10-year Treasury or a related swap rate. The SBA 504 debenture is a variation: it is sold to bond investors monthly, so your rate is set at that sale, not at application.
Choosing between them is a holding-period question, not a forecast. Treasury products answer to the bond market and can move opposite to Prime in the same week, so the cheaper index today may not be the cheaper loan across your hold.
Indicative pricing by loan product
The table shows how each product is quoted, how long the money runs, and what a lender weighs when setting the spread.
| Loan type | Typical index basis | Typical term | Typical amortization | What moves the spread |
|---|---|---|---|---|
| SBA 504 (debenture) | Treasury-based, set at the monthly debenture sale | Long debenture behind a shorter bank first | Fully amortizing, no balloon | Bond appetite at the sale, program fees, credit on the bank first |
| SBA 7(a) | Prime most commonly; fixed alternatives exist | Longer for real estate than equipment | Fully amortizing, no balloon | Program maximum allowable spread by size and term, credit grade, collateral |
| Conventional bank | Treasury or swap when fixed; Prime or Term SOFR when floating | Fixed period, then reset or balloon | Longer than the fixed period | Deposit relationship, leverage, coverage, recourse, property type |
| CMBS | 10-year Treasury or swap | Fixed for the full term | Long schedule, often partial interest-only | Conduit bond spreads, debt yield, market tier, tenancy, rollover |
| Life company | 10-year Treasury | Ten years and longer | Long schedule, interest-only at low leverage | Allocation appetite, asset quality, location, credit tenancy, leverage |
| DSCR / investor | Capital markets execution; Term SOFR when floating | Five to thirty years by program | Long schedule, interest-only common | Coverage, leverage, credit tier, lease type, prepayment penalty |
| Bridge / private money | Term SOFR plus a spread, usually with a floor | Short, with extension options | Interest-only | Business plan risk, as-is versus as-stabilized leverage, sponsor record |
| Construction | Prime or Term SOFR through the draw period | Construction period, often plus a mini-perm | Interest-only, then amortizing | Completion risk, guarantee structure, pre-leasing, committed takeout |
Indicative numbers are supplied on request for a specific transaction, because pricing moves with the index and with the deal in front of the lender, and any figure quoted is subject to lender underwriting. This page was last reviewed in August 2026 and is refreshed quarterly.
The seven factors that move your spread
The negotiation is about the spread. Seven inputs do most of the work.
- Leverage. The share of the capital stack the lender funds is the largest single driver, and lower leverage opens channels that price more keenly.
- Debt service coverage. The cushion between net operating income and the payment; a thin cushion prices wider and often caps proceeds before value does.
- Property type and tenancy. Stabilized multifamily and modern industrial draw the deepest lender pools; hospitality, special-use and near-term rollover price wider.
- Borrower strength and liquidity. Post-closing liquidity, global cash flow and track record pull the spread in; thin liquidity costs more than a mediocre score.
- Recourse versus non-recourse. A guarantee cuts loss severity and is rewarded in price; non-recourse carries that risk in the spread, the leverage, or both.
- Term and prepayment structure. Longer fixed periods and softer exit penalties cost something, because a lender surrendering call protection wants compensating.
- Lender channel. One building financed by a life company, a conduit, a bank and a private lender produces four spreads, because each funds itself differently.
Fixed, floating, and the price of your exit
Floating debt carries repricing risk in exchange for flexibility and a simpler exit. Fixed debt buys certainty, and the lender charges for the optionality it gives up.
That charge lands in the prepayment structure, which is part of the price of the loan even though it never appears in the rate. A step-down penalty declines as the loan seasons and is the friendliest of the common structures. Yield maintenance makes the lender whole for interest it expected to earn, so an early payoff costs whatever the Treasury curve says the day you exit. Defeasance, standard on CMBS, substitutes securities reproducing the payment stream. Because lenders shade the spread for stronger call protection, a slightly better rate paired with yield maintenance can be the costlier loan if you sell early. Ask where your rate becomes final: some products lock at application, others at commitment, and the SBA 504 debenture is set after closing.
California conditions that show up in your pricing
Three state-specific diligence items affect either the proceeds a lender will advance or the timeline to close, and both translate into cost. Seismic risk is the most common: lenders financing older non-ductile concrete and unreinforced masonry buildings frequently order a probable maximum loss study, and where the loss estimate exceeds the lender’s threshold the usual outcomes are an earthquake insurance requirement, a retrofit holdback, or reduced proceeds.
Environmental review is the second. Phase I assessments on industrial, auto-service and former dry-cleaning sites regularly surface a recognized environmental condition, triggering a Phase II with sampling. That adds weeks; floating-rate borrowers absorb index movement meanwhile, and fixed-rate borrowers can watch a lock expire.
Insurance is the third, and it is now a sizing issue rather than a paperwork one. Premium pressure varies sharply by county, particularly in wildfire-exposed inland areas, and because underwriters use actual renewal quotes rather than trailing expense a large increase cuts net operating income, then coverage, then the loan supportable at the same rate.
How to compare two quotes properly
Term sheets are rarely written to be comparable, so normalize them first.
- The index, the reset frequency, and whether a floor applies.
- The fixed period, the term and the amortization schedule, three different things.
- Any interest-only period, and the prepayment cost in the year you actually plan to exit.
- Recourse and guarantee scope, plus reserves or escrows that tie up capital the rate never shows.
- Which test caps proceeds: leverage, coverage or debt yield.
- Rate lock timing, third-party report scope, and who pays for them.
The step most borrowers skip is the simplest. Ask both lenders to state in writing, on the term sheet, the index quoted, the reset frequency, any floor, and the sizing test behind the loan amount, then re-run both at identical leverage. A cheaper-looking quote is usually sized on a different test or wrapped in harder call protection, and equalizing those two variables often flips the ranking.
Rates on any given day are a market fact no lender or broker controls; the structure wrapped around them is negotiable. Mission Valley Capital works across local banks, national banks, correspondent lenders, alternative lenders and private-money sources, so a transaction can be tested against several channels rather than fitted to one lender’s box. When you weigh commercial real estate loan rates in California, the question is not who posts the lowest number today but which structure survives your hold. Loan approval, terms, rates, leverage, closing timelines and funding remain subject to lender underwriting, transaction structure and eligibility requirements.
