Financing
How do you finance a commercial property?
Last updated: August 2026
The short answer
Commercial real estate is usually financed with a commercial mortgage from a bank, credit union, or specialty lender. Unlike a home loan, the property’s income does most of the qualifying — lenders size the loan to the asset’s net operating income, cash flow, and value, typically lending 65–75% of value with shorter terms and a balloon.
How commercial loans differ from home loans
- The property qualifies, not just you. Lenders underwrite the asset’s income — its NOI and debt service coverage — alongside the borrower.
- Lower leverage. Expect roughly 65–75% loan-to-value, meaning 25–35% down — more than a typical home purchase.
- Shorter terms with a balloon. A common structure is a 5-, 7-, or 10-year term amortized over 20–30 years, with the remaining balance (a balloon) due at term end — you refinance or sell.
- Recourse vs. non-recourse. Smaller bank loans are often recourse (a personal guarantee); larger agency and CMBS loans are frequently non-recourse, with “bad-boy” carve-outs for fraud or misconduct.
Down payment example
| Property value | $2,000,000 |
| Loan at 70% LTV | $1,400,000 |
| Down payment (30%) | $600,000 |
The metrics a lender runs
- LTV (loan-to-value) — loan ÷ value.
- DSCR (debt service coverage ratio) — whether income covers the payment, and usually the number that caps the loan. (See what DSCR is.)
- Debt yield — NOI ÷ loan amount, a leverage-independent risk check.
Common loan sources
- Banks & credit unions — relationship and portfolio lenders for most deals.
- SBA 504 / 7(a) — for owner-occupied property, often with a much lower down payment — a big advantage for a business buying its own space.
- Agency (Fannie Mae / Freddie Mac) — for multifamily.
- CMBS (conduit) — securitized, typically non-recourse.
- Life-company loans — competitive rates for strong, stabilized assets.
- Bridge / hard money — short-term capital for value-add or transitional deals.
The process is slower — plan for it
Application, financials and rent roll, appraisal, underwriting, and often a loan committee all take time — one reason commercial deals take longer than residential. Line up your lender early.
Common questions
How much do you put down on commercial property?
Typically 25–35% (65–75% LTV). Owner-occupants using an SBA loan can sometimes put down far less — one reason SBA financing is popular for business owners buying their space.
How is a commercial loan different from a home loan?
The property’s income does most of the qualifying, leverage is lower, and terms are shorter with a balloon — you refinance or sell rather than pay off over 30 years.
What is recourse vs. non-recourse?
Recourse loans carry a personal guarantee; non-recourse loans look only to the property, except for “bad-boy” carve-outs covering fraud or misconduct.