Most commercial purchases take 20 to 30 percent down. SBA programs for owner-occupied buildings can go as low as 10 percent. Your exact number is set by loan-to-value and debt service coverage, whichever binds first.
For most commercial purchases, plan on 20 to 30 percent down. Conventional bank and credit union loans usually land at 25 to 30 percent for investment property and 20 to 25 percent for a building your business will occupy. Agency multifamily programs can reach 80 percent loan-to-value on strong properties, which means 20 percent down. Bridge loans typically fund up to 75 percent of value, so 25 percent down or more, with the trade of speed and flexibility for price.
The standout exception is the SBA. For owner-occupied property, SBA 504 and 7(a) programs can finance up to 90 percent of the project, which puts the down payment as low as 10 percent. If your business will occupy at least 51 percent of the building, that is usually the first program worth checking.
Lenders do not start with a down payment. They start with two ratios and work backward. Loan-to-value caps how much of the price they will fund. Debt service coverage caps how much loan the property's income can carry. Your down payment is whatever fills the gap between the price and the smaller of those two loan amounts. On a strong-income property, the LTV cap usually binds. On a thin-income property, the DSCR cap binds, and the down payment climbs even if the advertised LTV looks generous.
That is why two buyers of identical buildings can face different down payments. Credit, experience, property condition, tenancy, and the loan program all move the line.
Budget past the down payment. Closing costs on a commercial purchase commonly run 2 to 5 percent of the loan: third-party reports, title, legal, and lender fees. Many lenders also want to see reserves after closing, often 6 to 12 months of debt payments. A buyer with exactly 25 percent and nothing behind it reads very differently to underwriting than a buyer with 25 percent plus a cushion.
Seller financing for a piece of the price, equity partners, a 1031 exchange rolling proceeds from a prior sale, and cross-collateralizing other property you own can all reduce the cash requirement. Each has trade-offs, and some lenders limit how much of the down payment can be borrowed. This is exactly the kind of structuring conversation worth having before you write the offer, not after.
Our free calculators will size the loan a property can support, and the Deal Brief Builder turns your price, loan request, and timeline into a one-page summary you can send us for a straight answer within one business day.
Most commercial lenders want a minimum of 1.20 to 1.25, meaning the property produces 20 to 25 percent more income than its annual debt payments. Stronger ratios earn better terms; below 1.0 the property does not cover its own payment.
Divide net operating income by annual debt service. A property with $200,000 of NOI and $127,220 of annual loan payments has a DSCR of 1.57.
Usually not from a bank, because the property does not cover its payment. Interest-only bridge financing can carry a transitional property while income is built to a level conventional lenders will finance.
Yes, substantially. Removing principal from the payment lowers annual debt service, which is why bridge lenders quote interest-only and why the same NOI supports a much larger interest-only loan.
Enter your NOI and loan terms and get the ratio instantly, with an interest-only toggle.
Read on →Coverage math decides your refinance options when a balloon matures.
Read on →What bridge lenders look at, and where coverage fits in.
Read on →Send the property, the loan amount, and your timeline. We will tell you whether it looks like something we can help with, usually within one business day.
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