How commercial underwriting thinks
The first question isn't your income — it's the building's: NOI ÷ annual debt service ≥ ~1.20–1.25 at most lenders. From there, leverage caps at 60–75% of value, the rent roll and tenant strength get read like a credit report, and a Phase I environmental report is standard (the selling guide walks the same due-diligence package from the other side). Your personal financials still matter — most bank loans carry personal guarantees — but the property is the borrower that counts. Refresh the NOI and cap-rate math first if those terms are fuzzy; every conversation below uses them.
The five doors
| Door | Best for | The shape of the deal |
|---|---|---|
| Bank / credit union | Most straightforward deals, relationship borrowers | 5–10 yr terms, 25–30 yr amortization, usually recourse; competitive pricing, real underwriting, deposit relationship helps |
| Agency multifamily (Fannie/Freddie) | Stabilized 5+ unit apartment buildings | Non-recourse (with carve-outs), strong pricing, prepay via yield maintenance; the default for stabilized multifamily at size |
| CMBS | Larger stabilized commercial, max proceeds | Non-recourse, aggressive sizing, but rigid servicing and expensive early exits (defeasance) |
| SBA 504 / 7(a) | Owner-user businesses buying their building | The ~10%-down door — next section |
| Private / bridge | Speed, transition stories, credit complexity | Short-term, higher cost — the hard money guide covers the anatomy; exit into one of the doors above |
The SBA door: buying your building with ~10% down
If your business will occupy the property, the math changes completely. The SBA 504 structure stacks a bank first mortgage (~50% of the project) with a CDC/SBA debenture (~40%, long-term fixed rate) over roughly a 10% borrower injection — on purchases that would otherwise demand 25–35% down. The fine print that matters:
- Occupancy: your business must occupy at least 51% of an existing building (you may lease out the rest) — or 60% of new construction, growing to 80% within about a decade.
- Size limits: the SBA debenture runs to $5.5 million for most projects (higher for certain manufacturing/energy projects) — supporting a project meaningfully larger than that once the bank half is counted.
- Coverage: the business needs to show it can carry the debt — ~1.25 DSCR on the business's cash flow is the usual bar. Newer businesses and special-purpose buildings can be asked for more down.
- 7(a) alternative: more flexible (can bundle working capital), up to $5 million, often floating-rate — sometimes the better tool, sometimes not. Price both.
For a profitable business paying serious rent, rent-vs-own is worth running annually — a mortgage payment that builds equity in the building your business already fills is one of the quiet wealth engines of small-business ownership. (Browse commercial listings or businesses for sale to see what's actually on the market.)
The balloon, the prepay, and the other fine print
- The balloon: a 7-year term on a 25-year amortization means refinancing or selling in year seven, at whatever rates and values year seven brings. That's not a flaw, it's the product — but it belongs in your risk planning, especially late in a rate cycle.
- Prepayment: commercial prepay is real money — step-downs (5-4-3-2-1) at banks, yield maintenance on agency debt, defeasance on CMBS. If a sale or refi inside five years is plausible, negotiate the prepay before rate.
- Recourse: banks usually want personal guarantees; agency and CMBS money is non-recourse with carve-outs (fraud, misapplication, environmental). Know which promises you're personally making.
- Reports and timeline: appraisal, Phase I, sometimes a property condition report; 45–90 days from application to closing is a realistic band, with SBA deals at the longer end.
Getting the best execution
Commercial pricing is negotiated, not posted. Three quotes minimum — ideally from different doors, not three of the same bank — and let each know it's a competition. A clean package (rent roll, trailing-12 operating statement, leases, your PFS, business financials for owner-user deals) speeds every door and prices better at all of them. And on income property, remember what the lender is really buying: the NOI. Every dollar of documented income is roughly worth its cap-rate multiple in value and its DSCR contribution in loan proceeds — the lease-structure guide explains why the same building with different leases borrows differently.