Commercial down payments typically range from 20 to 25 percent of the purchase price, but can be as low as 10 percent or as high as 40 percent depending on the property type, your credit, and the lender.

Unlike residential mortgages, which often accept 3 to 5 percent down, commercial real estate lenders treat down payment as a measure of your skin in the game. The larger your down payment, the less risk the lender carries, and the better your loan terms tend to be. A 25 percent down payment is the standard threshold where most lenders stop charging you extra fees or requiring additional guarantees.

The actual amount you'll need depends on what you're buying. An office building, retail space, or industrial warehouse will have different requirements than a multifamily apartment complex or a special-use property like a gas station or restaurant. Lenders also look at your personal credit score, the property's cash flow (if it generates income), and whether you're a first-time commercial buyer or have a track record.

Key Takeaways

  • Standard commercial down payments are 20 to 25 percent, though some lenders accept 10 percent and others require 40 percent depending on property type and risk.
  • Multifamily properties (apartment buildings) often have lower down payment requirements than single-tenant office or retail spaces.
  • Your personal credit score, business financials, and the property's income history all affect how much cash you must put down.
  • Putting down less than 20 percent usually means higher interest rates, additional fees, and stricter covenants from the lender.
  • SBA loans and portfolio lenders may accept lower down payments (10 to 15 percent) but come with their own restrictions and longer approval timelines.

How down payment changes by property type

Multifamily properties—apartment buildings with five or more units—typically accept 20 to 25 percent down from conventional lenders. These properties are viewed as lower risk because residential tenants are more stable and predictable than commercial tenants, and the income stream is easier to model.

Office, retail, and industrial properties usually require 25 to 30 percent down. These are riskier in a lender's eyes because they depend on a single tenant or a small group of tenants, and if a major tenant leaves, the property's value drops sharply. A retail strip center with one anchor tenant is riskier than a multifamily building with 50 individual leases.

Special-use properties—gas stations, restaurants, car washes, laundromats—often require 30 to 40 percent down because they have narrow resale markets and depend heavily on the business operating inside. If the restaurant fails, the building itself may be hard to repurpose or sell.

What lenders look at besides the down payment amount

Your personal credit score affects the down payment threshold. A score above 750 may may have access to you for 20 percent down on a multifamily property; a score below 680 may push you toward 30 or 35 percent. Lenders use your credit as a proxy for how you've managed debt in the past.

The property's debt service coverage ratio (DSCR) is how much monthly income the property generates compared to how much you'll owe each month. If the property brings in $10,000 a month and your loan payment is $6,000, your DSCR is 1.67. Most lenders want a DSCR of at least 1.25, meaning the property makes 25 percent more than it owes. A property with a weak DSCR may require you to put down more cash to offset the risk.

Your experience in commercial real estate matters. If you've owned and managed commercial properties before, lenders may accept 20 percent down. If this is your first commercial purchase, expect to put down 25 to 30 percent. Some lenders require you to have owned a property for at least two years before they'll lend on a new one.

Loan-to-value (LTV) ratio is the flip side of down payment. If you put down 25 percent, your LTV is 75 percent—the lender is financing 75 percent of the purchase price. Most conventional lenders cap LTV at 75 to 80 percent, which means your minimum down payment is 20 to 25 percent. Lenders rarely go above 80 percent LTV on commercial property.

How down payment affects your loan terms

A larger down payment lowers your interest rate. The difference is usually 0.25 to 0.5 percent per year. On a $1 million loan, that's $2,500 to $5,000 annually. Over a 10-year loan, that adds up to $25,000 to $50,000 in extra interest you'll pay if you put down 15 percent instead of 25 percent.

Down payments below 20 percent often trigger additional fees: a loan origination fee (1 to 2 percent of the loan amount), a higher appraisal fee, and sometimes a requirement to buy mortgage insurance or maintain a cash reserve equal to six months of loan payments. These costs can easily exceed $50,000 on a $2 million purchase.

Lenders also impose stricter covenants when you put down less. You may be required to maintain a minimum cash reserve, keep the property occupied above a certain threshold, or maintain a minimum DSCR. Violating these covenants can trigger a default even if you're making your payments on time.

SBA loans and portfolio lenders as alternatives

An SBA 504 loan is a government-backed program that allows down payments as low as 10 percent on certain property types. The SBA guarantees part of the loan, so the lender takes less risk. However, SBA loans come with strict rules: the property must be owner-occupied (you must run a business there), you can't use the money to buy an existing business, and the approval process takes 60 to 90 days instead of 30 to 45.

Portfolio lenders are banks that keep loans on their own books instead of selling them to investors. Because they hold the risk themselves, they can be more flexible. Some portfolio lenders accept 15 percent down on multifamily properties or 20 percent on office buildings. The tradeoff is that interest rates are often 0.5 to 1 percent higher than conventional loans, and the lender may require you to maintain a larger cash reserve or personal may provide.

Hard money lenders and private lenders typically accept 20 to 30 percent down but charge 8 to 12 percent interest and 2 to 4 points (2 to 4 percent of the loan amount as an upfront fee). These are short-term loans meant for fix-and-flip or bridge financing, not long-term ownership.

How to calculate what you can afford to put down

Start with the purchase price. If you're buying a $2 million office building and lenders want 25 percent down, you need $500,000 in cash. Add closing costs—typically 2 to 4 percent of the purchase price, or $40,000 to $80,000 on a $2 million deal. Add reserves: most lenders want you to keep 6 to 12 months of loan payments in the bank after closing. On a $1.5 million loan at 6 percent over 10 years, that's roughly $15,000 per month, so $90,000 to $180,000 in reserves.

Your total cash needed is down payment plus closing costs plus reserves. In this example, $500,000 + $60,000 + $135,000 = $695,000. If you have $500,000 in liquid assets, you can't afford this property—you'd fall short on reserves and closing costs, and the lender won't close without them.

Work backward from what you have. If you have $400,000 in cash, you can afford a property where 20 percent down is $400,000, meaning the purchase price is $2 million. But you still need $80,000 to $120,000 for closing and reserves, so realistically you can only commit $300,000 to down payment, which means you need a property where 15 percent down is acceptable—a multifamily building or a property with strong cash flow.

What happens if you put down less than 20 percent

Putting down 15 percent instead of 25 percent saves you $200,000 on a $2 million purchase, but it costs you in other ways. Your interest rate rises by 0.25 to 0.5 percent. You'll pay 1 to 2 percent in additional origination fees. You may be required to buy mortgage insurance (0.5 to 1 percent of the loan annually). You'll need to maintain a larger cash reserve. And if the property's value drops or your income drops, you're underwater faster—you have less equity cushion.

A lower down payment makes sense if you're confident the property will appreciate, the cash flow will grow, or you plan to refinance in three to five years when you've built equity. It doesn't make sense if you're stretching to afford the purchase or if the property's income is uncertain.

Frequently Asked Questions

Can I use a home equity line of credit or personal loan for my down payment?

Most lenders allow it, but they'll verify the source of funds. If you borrowed the money, the lender will count that debt against your personal debt-to-income ratio, which may disqualify you or require a larger down payment. If you inherited the money or received a gift, you'll need a signed letter from the gift-giver stating it's a gift, not a loan.

What if I'm buying with a partner or LLC?

The down payment still comes from the same sources, but the lender will look at the credit and finances of everyone with ownership stake. If you're 50/50 partners and one of you has poor credit, the lender may require a larger down payment or a personal may provide from the stronger partner to offset the risk.

Do I get the down payment back if the deal falls through?

The down payment is held in escrow until closing. If you walk away without a valid reason (your inspection finds problems, the appraisal comes in low, financing falls through), you typically lose the down payment to the seller. If the seller can't deliver clear title or the appraisal is significantly lower than the purchase price, you usually get your down payment back.

Can I negotiate a lower down payment with the seller?

Not directly—the lender sets the down payment requirement, not the seller. However, if you offer a higher purchase price, the seller may accept, and a higher price can sometimes improve the property's appraisal, which may allow a lower down payment percentage. This rarely works in practice and usually just costs you more.

What's the difference between down payment and earnest money?

Earnest money is a small deposit (1 to 3 percent) you put down when you make an offer to show you're serious. It's held in escrow and applied to your down payment at closing. Your full down payment is due at closing. If you put down 3 percent earnest money on a $2 million property, you still owe 22 percent more at closing if your total down payment is 25 percent.