Commercial down payments start at 20 percent and often run higher
Commercial real estate down payments are larger than residential ones. Most lenders require between 20 and 25 percent of the purchase price upfront. Some loans demand 30 percent or more, depending on the property type, your credit, how long you have owned a business, and the lender's own rules.
A residential mortgage might ask for 3 to 20 percent down. Commercial lenders treat the transaction differently because they are lending against a business asset, not a primary residence. The property itself has to generate income to cover the loan, so the lender wants you to have skin in the game from the start.
The exact percentage varies by what you are buying. An office building, retail strip, or apartment complex will have different requirements than raw land or a development project. A lender will also look at your personal credit score, your business's cash flow, how much debt you already carry, and whether you have owned commercial property before.
Key Takeaways
- Commercial lenders typically require 20 to 30 percent down, compared to 3 to 20 percent for residential mortgages.
- The down payment percentage depends on the property type, your credit score, your business's cash flow, and the lender's risk assessment.
- Multifamily properties (apartment buildings) often have lower down payment requirements than office or retail space.
- SBA loans can reduce your down payment to 10 percent if you meet specific business and property criteria, though approval takes longer.
- Your down payment affects your interest rate and monthly payment, so a larger down payment can save you money over the life of the loan.
How down payment percentage changes by property type
Multifamily properties—apartment buildings with four or more units—often have the lowest down payment requirements. Many lenders will accept 20 to 25 percent down for a well-maintained multifamily building in a stable market. The reason is predictable: tenants pay rent on a schedule, and the property generates steady cash flow that the lender can verify.
Office and retail properties usually require 25 to 30 percent down. These properties depend more on tenant quality and lease terms. If a major tenant leaves, the income drops sharply. Lenders price that risk into the down payment requirement.
Industrial properties—warehouses, manufacturing facilities, distribution centers—fall somewhere in the middle, typically 20 to 25 percent. Hotels and hospitality properties are riskier from a lender's view and often require 30 percent or more. Raw land and development projects can demand 30 to 50 percent down because there is no existing income stream to evaluate.
What lenders look at besides the down payment percentage
Your personal credit score matters. Most commercial lenders want a score of 680 or higher, though some will go lower. A score below 650 usually means higher rates, a larger down payment requirement, or both. If you have recent late payments, foreclosures, or bankruptcies, expect to put more money down.
Your business's cash flow is critical. Lenders want to see that your business generates enough profit to cover the loan payment, property taxes, insurance, maintenance, and other operating costs. They typically want to see two to three years of business tax returns and bank statements. If your business is new or has been unprofitable, you may need a larger down payment to offset that risk.
Your debt-to-income ratio affects the loan decision. If you already carry significant personal or business debt, the lender may require a larger down payment to reduce the total loan amount. Some lenders use a debt service coverage ratio (DSCR), which compares the property's annual income to the annual loan payment. A DSCR of 1.25 or higher is common; if your property's income is tight, a bigger down payment helps you may have access to.
Experience with commercial property matters. If you have owned and managed commercial real estate before, lenders view you as lower risk. First-time commercial buyers often face higher down payment requirements than experienced investors.
SBA loans and other ways to reduce your down payment
The Small Business Administration (SBA) backs certain commercial real estate loans through its 504 loan program. An SBA 504 loan can reduce your down payment to as low as 10 percent if you meet the program's requirements. You must be a for-profit business, the property must be owner-occupied (you run your business there), and the loan amount has limits that vary by industry and location.
An SBA 504 loan works differently than a conventional commercial mortgage. You put down 10 percent, the SBA-backed lender finances 40 percent, and a certified development company finances the remaining 50 percent. The process takes longer—typically 60 to 90 days—and involves more paperwork, but the lower down payment can make it worth it if you may have access to.
Some portfolio lenders (banks that keep loans on their own books rather than selling them) have more flexible down payment rules. They may accept 15 to 20 percent down if you have strong credit and a solid business. These lenders are less common and often charge higher interest rates to offset the lower down payment.
Bringing in a partner or investor can help you meet the down payment requirement without borrowing the money. If a partner contributes capital, the lender sees a larger down payment and lower leverage on the loan. Make sure any partnership is documented in writing before you approach the lender.
How your down payment affects your loan terms
A larger down payment lowers your interest rate. If you put down 20 percent, you might get a rate of 6.5 percent. If you put down 30 percent, the same lender might offer 6.0 percent. That difference compounds over a 20-year loan and can save you tens of thousands of dollars.
Your down payment also determines how much you have to borrow. If the property costs $1 million and you put down $200,000 (20 percent), you borrow $800,000. If you put down $300,000 (30 percent), you borrow $700,000. The lower loan amount means lower monthly payments and less total interest paid over the life of the loan.
Down payment size affects your loan-to-value ratio (LTV). Lenders express this as a percentage: a $1 million property with an $800,000 loan has an 80 percent LTV. Most commercial lenders cap LTV at 75 to 80 percent, which means you need at least 20 to 25 percent down. Some lenders will go to 85 percent LTV (15 percent down) for strong borrowers, but that is less common.
Saving and timing for your down payment
Commercial down payments are substantial. A $1 million property with a 25 percent down payment requires $250,000 in cash. That money has to be in your bank account and documented before the lender will approve the loan. Most lenders want to see the funds for at least 60 days before closing, though some will accept a shorter period if you can show the money came from a legitimate source (savings, business income, a loan from a family member).
Lenders will ask for bank statements, proof of employment or business income, and sometimes a letter from your bank confirming the funds are yours. If you borrowed the down payment from someone else, that loan will show up on your credit report and may affect your debt-to-income ratio. Some lenders prohibit borrowed down payments entirely; others allow them if the loan is unsecured and the monthly payment is low.
Start saving or securing your down payment months before you plan to buy. The larger your down payment, the faster you will close and the better your loan terms. If you are short on cash, explore SBA loans or portfolio lenders before you settle for a higher interest rate on a conventional loan.
Frequently Asked Questions
Can I put down less than 20 percent on commercial real estate?
Yes, but it is uncommon and usually costs more. SBA 504 loans allow 10 percent down for owner-occupied businesses. Some portfolio lenders accept 15 percent down if you have excellent credit and strong cash flow. Expect a higher interest rate and stricter terms if you go below 20 percent.
Does my down payment have to come from my own savings?
No. Down payments can come from business savings, personal savings, a loan from a family member, or a partner's contribution. Lenders will ask where the money came from and may require documentation. Borrowed down payments can affect your debt-to-income ratio, so disclose them upfront.
What happens if I put down more than the minimum?
A larger down payment lowers your interest rate, reduces your monthly payment, and improves your loan approval odds. It also means you own more of the property outright and have less exposure to market downturns. The tradeoff is that you tie up more cash that could be used elsewhere in your business.
Do I need the full down payment before I make an offer?
No. You typically need to show proof of funds when you apply for the loan, which is after your offer is accepted. However, you may need to put down an earnest money deposit (usually 1 to 3 percent of the purchase price) when you make the offer to show you are serious.
Will my down payment percentage change if interest rates go up?
Not automatically, but higher rates can affect your loan approval. If rates rise and your cash flow is tight, the lender may require a larger down payment to lower the loan amount and keep your monthly payment manageable. Lock in your rate as soon as the lender offers it.