Commercial Real Estate Down Payment Requirements

When purchasing commercial real estate, one of the most important things to consider is the down payment requirement. Unlike residential real estate, commercial properties have much stricter requirements, and it is important to understand these requirements before you start shopping for properties.

One of the most popular financing options for owner users is the Small Business Administration (SBA) 7a loan program. The SBA requires a 10% down payment for owner users, or 90% loan-to-value. However, there are some requirements to qualify for an SBA loan, including that you must occupy at least 51% of the square footage of the property, and maintain 10% cash liquidity post closing. SBA commercial real estate loan terms are fully amortized 25 year terms with interest rates at prime plus 2-4%. SBA 7a loans can include the property improvements and equipment in the loan also. This includes retail, office, industrial, hospitality, mixed use, and specialty use properties.

For conventional and private capital funded investor purchases, the down payment requirement ranges from 20-50% of the purchase price, or 50-80% loan-to-value. For stabilized properties with 85% occupancy and above the LTV is typically 65-80%. In comparison, value add or vacant commercial purchases are financed in the 50-65% LTV range. The terms range from 3 to 20 years, with fixed or adjustable interest rate programs. Conventional and private capital interest rates range from 5.25-18% depending on the leverage, asset, and creditworthiness of the borrower. This includes retail, office, industrial, hospitality, mixed use, and specialty use properties.

For apartments and multifamily acquisitions, the down payment requirement ranges from 15-30%, or 70-85% loan-to-value. Freddie Mac (FHMLC) and Fannie Mae (FNMA) are two popular government-sponsored entities that lend on apartment properties. They lend up to 80% LTV. The Federal Housing Authority (FHA) lends up to 85% LTV on multifamily properties; however, their underwriting and approval process ranges from 5-10 months. Apartment loans terms range from 10 to 30 years, and the FHA even goes up to 35 year terms. Interest rates are typically prime plus 2-4%.

Land acquisitions are typically 50% loan-to-value, and construction projects range from 50-70% loan-to-cost. It is important to note that commercial real estate financing is much more complex than residential financing, and it is important to work with a knowledgeable and experienced commercial loan broker to ensure that you get the best deal possible.

In conclusion, the down payment requirement for commercial real estate purchases varies depending on the type of property and financing option chosen. SBA loans require a 10% down payment for owner users, while conventional and private capital funded investor purchases range from 20-50% down payment. For apartments and multifamily acquisitions, the down payment requirement ranges from 15-30%. Land acquisitions are typically 50% loan-to-value, and construction projects range from 50-70% loan-to-cost.

Purchasing a commercial property? Loan program details are available on the Commercial Financing Solutions page.