Commercial down payments start at 20 percent and often go higher
A commercial property down payment is typically between 20 and 30 percent of the purchase price. This is substantially higher than residential mortgages, where 3 to 20 percent is common. The exact amount depends on the property type, your credit profile, the lender, and market conditions at the time you're seeking financing.
Unlike residential lending, which has standardized programs backed by government entities like Fannie Mae, commercial lending is negotiated between you and the lender. A bank might ask for 25 percent on an office building but 30 percent on a restaurant with equipment that depreciates quickly. A lender who views your business as stable may accept 20 percent; one concerned about your industry may demand 35 percent or decline entirely.
The down payment you bring affects your interest rate, loan terms, and whether the lender will even consider your deal. Larger down payments reduce the lender's risk, so they often come with better rates and faster approval. Smaller down payments—closer to 20 percent—are possible but typically require stronger financials, a longer track record, or a co-signer.
Key Takeaways
- Commercial down payments range from 20 to 30 percent of purchase price, with some lenders requiring more depending on property type and borrower strength.
- The amount you bring down directly affects your interest rate and loan approval odds—larger down payments usually mean better terms.
- Lenders evaluate commercial deals individually, so the same property might require different down payments from different banks.
- Your business financials, personal credit, and the property's cash flow potential all factor into what a lender will accept.
- Down payment requirements vary by property type: multifamily buildings, office, retail, and industrial each carry different risk profiles in lenders' eyes.
How property type affects your down payment requirement
Multifamily properties—apartment buildings with five or more units—often sit at the lower end of the range. A lender may accept 20 to 25 percent down because rental income is predictable and the property itself is easier to refinance or sell. Fannie Mae and Freddie Mac both have multifamily lending programs with set guidelines, which creates more standardized terms across the market.
Office buildings, retail spaces, and industrial warehouses typically require 25 to 30 percent down. These properties depend more heavily on tenant quality and lease terms. A building with long-term, creditworthy tenants might may have access to for 25 percent; one with month-to-month tenants or a single occupant might require 30 percent or more.
Specialized properties—hotels, restaurants, medical offices, or mixed-use buildings—often demand 30 percent or higher. These carry higher operational risk because their income depends on day-to-day business performance, not just a lease payment. A hotel's revenue fluctuates with occupancy rates; a restaurant's with foot traffic and management quality. Lenders price that uncertainty into their down payment requirement.
Land purchases typically require the largest down payments, sometimes 40 percent or more, because land generates no income and its value is harder to predict. Construction loans for new buildings also demand larger down payments because the property doesn't yet exist and won't generate income until completion.
What lenders actually look at when setting your down payment
Your debt service coverage ratio (DSCR) is the primary number lenders use. This is the property's annual net income divided by your annual loan payments. Most lenders want to see a DSCR of at least 1.25, meaning the property generates 25 percent more income than it costs to service the debt. A property with strong DSCR—say, 1.5 or higher—may may have access to for a lower down payment. A property with weak DSCR may require a larger down payment or be declined entirely.
Your personal credit score and business financials matter significantly. A borrower with a 750+ credit score, three years of profitable tax returns, and substantial liquid reserves can often negotiate down to 20 percent. A borrower with a 650 credit score, one year of operation, or thin margins will face 30 percent or higher requirements, or rejection.
The loan-to-value ratio (LTV) is what lenders actually control. If you put down 25 percent, your LTV is 75 percent—the bank is lending 75 percent of the property's value. Most commercial lenders cap LTV at 75 to 80 percent, which translates to 20 to 25 percent down. Some will go to 85 percent LTV (15 percent down) for strong borrowers and properties, but this is less common and comes with higher rates.
Market conditions and interest rates also shift requirements. When rates are high and lenders are cautious, down payment minimums rise. When rates are low and competition for deals is fierce, lenders may accept 20 percent or even 15 percent for strong borrowers.
Down payment amounts for different loan types
| Loan Type | Typical Down Payment | Who Offers It | Key Requirement |
|---|---|---|---|
| Conventional bank loan | 25–30% | Banks, credit unions | Strong DSCR, 2+ years financials |
| Multifamily (Fannie Mae/Freddie Mac) | 20–25% | Approved lenders | 5+ units, 1.25+ DSCR |
| SBA 504 loan | 10–20% | SBA-certified lenders | Owner-occupied, under $5.5M |
| Portfolio loan | 20–40% | Banks holding their own loans | Varies widely by bank |
| Hard money/bridge loan | 20–40% | Private lenders | Exit strategy, short-term hold |
| Construction loan | 20–30% | Banks, construction lenders | Detailed plans, experienced builder |
An SBA 504 loan is one of the few programs that allows down payments below 20 percent. These loans are designed for owner-occupied commercial properties under $5.5 million. The SBA guarantees a portion of the loan, which lets lenders accept 10 to 20 percent down. However, the property must be owner-occupied (you or your business operates there), and the process takes longer than a conventional loan.
Portfolio loans are mortgages that banks keep on their own books rather than selling to investors. Because the bank holds the risk, they set their own rules. Some portfolio lenders will accept 15 to 20 percent down for strong borrowers; others demand 35 to 40 percent. These loans are slower to close and less transparent in pricing, but they offer flexibility for borrowers who don't fit conventional boxes.
How to lower your down payment requirement
Bring stronger financials. If your business has three years of tax returns showing consistent profit, a DSCR above 1.5, and clean credit, you're in a position to negotiate. Some lenders will accept 20 percent down for this profile; others might go to 15 percent. Lenders want to see that your business can sustain the loan payment even if revenue dips.
Choose a property with stable, long-term tenants. A building where the largest tenant has a five-year lease at market rate is lower risk than one with month-to-month occupancy. Lenders will price this difference into their down payment requirement. A property with strong, creditworthy tenants may may have access to for 20 percent down; one with weak tenants may require 30 percent or more.
Consider an SBA 504 loan if you're buying an owner-occupied property. These programs allow 10 to 20 percent down, but they take 60 to 90 days to close and require you to occupy the space. If you're buying a building to house your own business, this can be significantly cheaper than a conventional loan.
Bring a co-signer or partner with strong credit and assets. If your personal financials are weak but a partner or investor has a strong balance sheet, they can co-sign the loan. This reduces the lender's risk and may lower your down payment requirement by 5 to 10 percentage points.
Negotiate with multiple lenders. Banks price commercial loans differently based on their appetite for your property type and market. A bank that specializes in office buildings may offer better terms than one that doesn't. Getting quotes from three to five lenders can reveal a 5 to 10 percent difference in down payment requirements.
What happens after you put down your down payment
Your down payment is held in escrow until closing. The escrow agent—usually a title company or attorney—holds the money and releases it only when all conditions are met: inspections pass, appraisal comes in at or above purchase price, financing is locked, and title is clear. If the deal falls through because the appraisal is low or financing is denied, your down payment is returned (assuming you included an appraisal or financing contingency in your offer).
At closing, your down payment is credited toward the purchase price. If you're buying a $1 million property and putting down $250,000 (25 percent), you'll borrow $750,000. The down payment, plus the loan proceeds, equals the full purchase price paid to the seller.
Some of your down payment may also cover closing costs—title insurance, appraisal, loan origination fees, attorney fees, and inspections. These typically run 2 to 5 percent of the purchase price. Ask your lender upfront whether closing costs come out of your down payment or are paid separately. If they come out of your down payment, you may need to bring additional cash to cover both the down payment and closing costs.
Frequently Asked Questions
Can I use a gift or loan from someone else for my down payment?
Most lenders allow gift funds from family members, but they require a signed gift letter stating the money is a gift, not a loan. Borrowed funds are usually not allowed because they increase your debt obligations and lower your DSCR. Ask your lender before accepting any money—their rules vary.
What if I can't afford the down payment a lender is asking for?
You have three options: find a different lender with lower requirements, improve your financials and reapply in six to twelve months, or look at an SBA 504 loan if the property qualifies. Some lenders will also accept a smaller down payment in exchange for a higher interest rate, though this increases your total cost.
Do I get my down payment back if the deal doesn't close?
Only if your offer included contingencies—typically an appraisal contingency, financing contingency, or inspection contingency. If the appraisal comes in low or your financing is denied, you can walk away and recover your down payment. If you walk away without a valid contingency, the seller keeps the money.
Is the down payment the same as earnest money?
No. Earnest money is a smaller deposit (typically 1 to 3 percent) you put down when you make an offer to show you're serious. At closing, earnest money is credited toward your down payment. So if you put down $30,000 earnest money on a $1 million purchase, your actual down payment at closing would be $250,000 minus the $30,000 already paid.
Can I finance my down payment?
Some lenders allow a second mortgage or line of credit to cover part of the down payment, but most conventional lenders prohibit this because it increases your total debt. SBA loans and some portfolio lenders are more flexible. Ask your primary lender before pursuing secondary financing.