One of the first questions commercial real estate investors ask is how much to put down on a commercial building. Unlike residential purchases with standardized programs, commercial down payments vary significantly based on loan type, property type, and borrower qualifications.
Understanding these requirements helps you plan acquisitions, structure partnerships, and select appropriate financing. This guide breaks down down payment requirements across all major commercial loan types and explains what factors influence how much you will need.
Commercial Building Down Payments
10-35%
Down Payment Range
25%
Most Common
10%
SBA Minimum
35%
Maximum Typical
What Is the Standard Down Payment for Commercial Real Estate?
While requirements vary, 25% has become the most common down payment for commercial real estate transactions. This represents a 75% loan-to-value (LTV) ratio, which most lenders consider balanced risk.
Down Payment by Loan Type
| Loan Type | Down Payment | LTV | Best For |
|---|---|---|---|
| SBA 504 | 10-15% | 85-90% | Owner-occupied properties |
| SBA 7(a) | 10-20% | 80-90% | Smaller deals, working capital |
| Fannie/Freddie Multifamily | 20-25% | 75-80% | Stabilized apartments |
| Bank/Credit Union | 25-30% | 70-75% | Relationship borrowers |
| CMBS | 25-35% | 65-75% | Large properties |
| Bridge Loans | 20-30% | 70-80% | Value-add acquisitions |
| Life Insurance Co. | 30-40% | 60-70% | Class A properties |
However, actual requirements range from as low as 10% for SBA-backed loans to 35% or more for certain property types or borrower situations. The specific requirement depends on the loan program, property type, property condition, and your qualifications as a borrower.
Understanding why requirements vary helps you find programs that minimize your capital outlay while meeting your investment objectives.
The 25% Standard
While requirements vary, 25% down has become the standard for most commercial real estate transactions. Budget for this amount, and consider it a bonus if you qualify for programs requiring less.
For multifamily apartment buildings, down payments typically range from 20-25% through agency programs like Fannie Mae and Freddie Mac. These properties benefit from stable residential demand and proven lending models.
For other commercial properties like retail, office, or industrial, expect 25-30% down through most conventional lenders. These property types carry more risk from tenant concentration and economic sensitivity.
Special purpose properties may require 30-35% down due to limited marketability if the business fails. Examples include hotels, gas stations, car washes, and restaurants.
What Are SBA Loan Down Payment Requirements?
SBA loans offer the lowest down payments available for commercial real estate, making them attractive for qualifying borrowers.
SBA 504 loans require as little as 10% down payment for owner-occupied properties. The structure involves a first mortgage from a bank (50% of project cost), a second mortgage from a Certified Development Company backed by SBA (40%), and your down payment (10%).
The 10% minimum increases to 15% for new businesses (less than 2 years operating history) or special-purpose properties with limited alternative uses.
SBA 7(a) loans for commercial real estate typically require 10-20% down, depending on lender requirements and deal specifics. These loans offer more flexibility than 504 loans but may have higher rates.
Owner-occupancy is required for SBA loans. You must use at least 51% of the property for your own business purposes. This limits SBA to owner-operators rather than passive investors.
Processing time extends longer for SBA loans due to government approval requirements. Expect 90-120 days from application to closing.
The trade-off for lower down payments includes owner-occupancy restrictions, longer processing times, and SBA fees. For qualifying borrowers, these trade-offs often make sense given the capital preservation benefits.
Our guide on SBA loans for multifamily properties explains eligibility and application requirements.
What Down Payment Do Bank Commercial Loans Require?
Bank portfolio loans represent the most flexible commercial financing option, with down payment requirements that vary by institution and relationship.
Standard bank requirements typically range from 25-30% down for commercial real estate. Banks want significant borrower equity to ensure alignment of interests and provide cushion against value declines.
Relationship benefits can reduce requirements. If you have banked with an institution for years, maintained substantial deposits, and demonstrated reliable payment history, banks may offer more favorable terms including lower down payments.
Factors Affecting Down Payment Requirements
Property Type
Multifamily requires less than retail
Property Condition
Stabilized vs value-add
Borrower Experience
New vs experienced investors
Credit Profile
Score, history, net worth
Market Strength
Primary vs secondary markets
Local market knowledge allows some banks to accept more aggressive terms for properties they understand well. A community bank may require less down payment for a property in their service area than a national bank unfamiliar with the market.
Property type and condition influence requirements. Stabilized properties with strong income histories may qualify for lower down payments. Value-add properties or those with unstable occupancy may require 30% or more.
First-time commercial investors typically face higher requirements than experienced operators. Banks want to see track records before extending aggressive leverage.
Credit union commercial loans may offer slightly better terms for members, though programs and requirements vary significantly between institutions.
What Are Agency Loan Down Payment Requirements?
Fannie Mae and Freddie Mac agency loans serve the multifamily apartment market with competitive down payment requirements for qualifying properties.
Standard agency down payments range from 20-25% for stabilized apartment buildings. The exact requirement depends on property quality, market strength, and borrower qualifications.
Small Balance Loan programs from both agencies target properties with loan amounts between $750,000 and $6 million. These programs offer down payments as low as 20% for well-qualified borrowers and strong properties.
Property stabilization requirements mean agency loans work best for occupied, performing properties. Buildings with less than 90% occupancy, significant deferred maintenance, or below-market rents may not qualify until issues are resolved.
Non-recourse terms available through agency programs protect your personal assets, making the slightly higher down payment worthwhile for many investors compared to recourse bank loans.
Experience requirements may increase down payments for first-time apartment investors. Agencies want borrowers who have successfully managed similar properties.
Our comprehensive guide on apartment building mortgages details agency loan qualification requirements.
What About Bridge Loan Down Payments?
Bridge loans finance transitional properties with down payment requirements reflecting the higher risk of unstabilized assets.
Standard bridge down payments range from 20-30% of the purchase price. However, bridge lenders often evaluate deals based on after-repair value (ARV) rather than current value.
The ARV approach means your effective leverage may be higher than traditional metrics suggest. A property purchased for $1 million with $250,000 down (25% of purchase price) might have an ARV of $1.5 million after renovation, representing only 17% of the improved value.
Property type and business plan complexity affect requirements. Straightforward lease-up situations may qualify for lower down payments. Major renovations or repositioning projects may require more equity.
Borrower experience matters significantly for bridge loans. Lenders want confidence that you can execute the business plan and repay the loan through refinancing or sale.
Exit strategy clarity influences terms. Bridge lenders want to see realistic refinancing or sale plans. Unclear exits may require higher down payments or not qualify at all.
Interest rates on bridge loans (typically 8-12%) compensate for the higher risk and shorter terms, but the ability to capture value-add opportunities often justifies the premium.
What Factors Influence Down Payment Requirements?
Several factors determine where your specific situation falls within typical ranges.
Down Payment Requirements by Property Type
Multifamily (Stabilized)
22
Retail
25
Office
25
Industrial
25
Mixed-Use
27
Special Purpose
30
Property type significantly impacts requirements. Multifamily properties benefit from stable residential demand and typically require 20-25% down. Retail, office, and industrial properties usually require 25-30%. Special purpose properties may require 30-35%.
Additional Capital Requirements
2-4%
Closing Costs
6-12 Mo
Cash Reserves
$5-15K
Appraisal Cost
$3-8K
Environmental
Property condition and occupancy affect lender risk assessment. Stabilized properties with strong income histories qualify for the lowest down payments. Value-add properties or those with vacancy issues require more equity.
Borrower experience influences lender confidence. First-time commercial investors may face requirements 5-10 percentage points higher than experienced operators with proven track records.
Credit profile includes your credit score, existing debts, net worth, and liquidity. Strong profiles may qualify for better terms. Weaker profiles may require additional equity.
Market strength matters to lenders. Primary markets with diverse economies may receive more favorable terms than secondary or tertiary markets with concentrated employment.
Loan-to-value considerations interact with debt service coverage. Even if LTV allows lower down payments, DSCR requirements may effectively require more equity if property income is modest relative to value.
What Additional Capital Do You Need Beyond the Down Payment?
Down payment is just part of the total capital required for commercial real estate acquisition.
Strategies to Reduce Down Payment
| Strategy | How It Works | Considerations |
|---|---|---|
| SBA 504 Loan | Government guarantee reduces lender risk | Owner-occupancy required |
| Seller Financing | Seller carries portion of purchase price | Requires willing seller |
| Partnership | Split capital requirements with partners | Share ownership and returns |
| Blanket Loan | Cross-collateralize with other properties | Ties properties together |
| Mezzanine Debt | Second lien fills gap to senior loan | Higher total interest cost |
Closing costs typically add 2-4% of the loan amount. These include origination fees (1-2%), appraisal ($5,000-15,000 for commercial properties), environmental assessment ($3,000-8,000), legal fees, title insurance, and recording costs.
Cash reserves are required by most lenders. Expect to maintain 6-12 months of operating expenses plus debt service in liquid accounts after closing. For a property with $10,000 monthly expenses and $15,000 monthly debt service, this means $150,000-300,000 in reserves.
Due diligence expenses occur before closing but are at your risk if the deal fails. Property inspections, environmental reviews, and legal fees during due diligence may cost $20,000-50,000 or more for larger properties.
Working capital needs may require additional funds if you plan renovations, need to address deferred maintenance, or want cushion for unexpected expenses during the initial ownership period.
Total cash required often exceeds the down payment by 30-50%. For a $1 million acquisition with 25% down, budget $250,000 for down payment plus $75,000-125,000 for closing costs, reserves, and contingencies.
What Strategies Can Reduce Your Down Payment?
Several approaches can reduce the capital you need to close commercial acquisitions.
SBA financing provides the clearest path to lower down payments if you qualify. The 10% minimum for SBA 504 loans cuts required equity in half compared to conventional financing.
Seller financing can supplement traditional financing. If a seller is willing to carry a second mortgage for 10-15% of the purchase price, your out-of-pocket reduces accordingly. Negotiate seller financing as part of purchase offers.
Partnership structures split capital requirements among multiple investors. A deal requiring $500,000 equity might be split between two partners at $250,000 each, or five partners at $100,000 each.
Blanket loans (cross-collateralization) use equity in existing properties to secure new acquisitions, potentially reducing cash needed for new purchases. This strategy ties properties together, creating interdependency risk.
Mezzanine financing provides subordinate debt that sits between senior debt and equity. This fills the gap between what senior lenders will provide and the purchase price, though at higher interest rates.
Assumable loans on existing properties may allow you to acquire with less cash if you can assume favorable existing financing rather than originating new loans.
Use our commercial mortgage calculator to model different scenarios and understand how various down payments affect your returns.
How Does Property Type Affect Down Payment?
Different commercial property types carry different risk profiles that influence down payment requirements.
Multifamily apartments typically require the lowest down payments (20-25%) because residential demand is relatively stable and predictable. Agency programs from Fannie Mae and Freddie Mac specifically support this sector.
Industrial properties have gained lender favor due to e-commerce growth. Down payments typically range from 22-27%, lower than some other commercial categories.
Retail properties face more scrutiny due to e-commerce disruption. Expect 25-30% down, with higher requirements for properties with significant big-box or department store exposure.
Office properties present mixed risk depending on location and tenant quality. Down payments typically range from 25-30%, potentially higher for suburban or single-tenant properties.
Mixed-use properties may require 25-30% down depending on the income mix between residential and commercial components.
Special purpose properties (hotels, restaurants, car washes, gas stations) typically require 30-35% down due to limited alternative uses if the business fails.
Learn more about financing options in our guide on multifamily property loan options.
What Should First-Time Commercial Investors Expect?
First-time commercial investors face unique challenges that often translate to higher down payment requirements.
Total Cash to Close
Beyond the down payment, budget for closing costs (2-4% of loan amount), cash reserves (6-12 months of operating expenses), and due diligence expenses (appraisal, environmental, inspection). Total cash needed often exceeds down payment by 30-50%.
Experience premiums mean first-time buyers may need 5-10 percentage points more equity than experienced operators. A deal that requires 25% down from an experienced investor might require 30-35% from a first-timer.
Property size limitations may apply. Lenders may restrict first-time commercial borrowers to smaller properties until they demonstrate successful operations.
Partner requirements can help. Bringing an experienced partner onto the deal may satisfy lender concerns and unlock better terms, even if that partner has a minority ownership stake.
Starting smaller makes sense. A first commercial acquisition should be manageable enough that problems are learning experiences rather than financial catastrophes. Build track record before scaling up.
Documentation depth increases for inexperienced borrowers. Expect more thorough scrutiny of your business plan, financial projections, and contingency planning.
Consider starting with smaller multifamily properties to build experience before pursuing larger commercial deals.
Ready to Finance Your Commercial Property?
Understanding commercial building down payment requirements helps you plan acquisitions and select appropriate financing strategies. While 25% represents the standard, actual requirements range from 10% for SBA-backed owner-occupied properties to 35% for certain property types or borrower situations.
The key is matching your situation with available programs. Owner-operators should explore SBA financing. Apartment investors should consider agency loans. Investors with strong banking relationships should leverage those for better terms.
Beyond the down payment, budget for closing costs, reserves, and working capital. Total cash requirements typically exceed down payment by 30-50%.
Whether you are exploring your first multifamily loan or financing your tenth commercial property, understanding the capital landscape enables smarter decisions.
Our team specializes in commercial real estate financing across all property types and experience levels. We will assess your situation, compare available options, and help you secure optimal terms for your acquisition. Contact us today to discuss your commercial property purchase.