What a commercial property down payment is

A down payment on a commercial property is the cash you put toward the purchase price upfront. The lender finances the rest. If you buy a building for $500,000 and put down $100,000, the lender covers the remaining $400,000 through a loan you repay over time.

Commercial down payments work differently from residential ones. Lenders expect larger percentages of the purchase price upfront, and the exact amount depends on the property type, your credit history, how much cash flow the property generates, and the lender's own rules.

The down payment protects the lender. If you default on the loan, they can sell the property — but real estate sales take time and costs money. A larger down payment means they lose less if that happens, so they're willing to lend to you in the first place.

Key Takeaways

  • Commercial down payments typically range from 20 to 30 percent of the purchase price, though some lenders require as little as 10 percent or as much as 40 percent depending on the property and borrower.
  • The down payment amount depends on the property type (office, retail, industrial, multifamily), the property's income history, your credit score, and how much cash flow it generates relative to the loan amount.
  • Lenders calculate a metric called the loan-to-value ratio, which compares the loan amount to the property value — a lower ratio means you're putting more down and the lender takes less risk.
  • Some commercial loans require reserves after closing, meaning you must have additional cash set aside beyond the down payment to cover operating expenses or loan payments if the property underperforms.
  • Down payment requirements can shift based on market conditions, interest rates, and whether the property is stabilized (generating consistent income) or under development.

Typical down payment ranges by property type

Most commercial lenders expect between 20 and 30 percent down. A $1 million office building would typically require $200,000 to $300,000 in cash at closing. But this is not a fixed rule — the actual amount depends on what you're buying.

Multifamily properties (apartment buildings with five or more units) often sit at the lower end, around 20 to 25 percent, because they generate predictable rental income that lenders can verify. Retail properties and office buildings typically require 25 to 30 percent because their income is less stable — tenants leave, retail traffic changes with the economy. Industrial properties (warehouses, manufacturing) often fall in the 20 to 30 percent range depending on the tenant's creditworthiness.

Properties under development or not yet generating income usually require 30 to 40 percent down because the lender has no income history to evaluate. A vacant building you plan to renovate and lease is riskier than one already occupied by paying tenants.

How lenders decide your specific down payment

Lenders use a calculation called the loan-to-value ratio, or LTV. This compares the loan amount to the property's appraised value. If a property appraises for $1 million and you borrow $750,000, your LTV is 75 percent — meaning you're putting 25 percent down.

Most commercial lenders cap LTV at 75 to 80 percent, which means your down payment must be at least 20 to 25 percent. But they also look at the property's debt service coverage ratio, or DSCR. This measures whether the property's annual income is enough to cover the annual loan payments. If the property generates $100,000 per year and your loan payments are $60,000 per year, your DSCR is 1.67. Lenders typically want a DSCR of at least 1.2 to 1.25, meaning the property earns at least 20 to 25 percent more than it owes annually.

If a property's income is weak, a lender may require a larger down payment to lower the loan amount and reduce annual payments — even if the LTV would technically allow a smaller one. Your personal credit score, business credit history, and experience with similar properties also matter. Borrowers with strong credit and a track record of managing commercial real estate may negotiate lower down payments.

Cash reserves and additional money at closing

Down payment is not the only cash you need. Many lenders require reserves — additional money you must hold in a bank account after closing. Reserves typically equal three to six months of the property's operating expenses or loan payments, whichever is higher.

If your annual loan payment is $60,000 and operating costs are $40,000 per year, a lender might require six months of combined payments in reserve: ($60,000 + $40,000) ÷ 2 = $50,000 in reserves. You cannot spend this money; it sits in an account as proof you can cover shortfalls if the property underperforms or vacancy spikes.

Some lenders also require closing costs — appraisal fees, title insurance, legal fees, loan origination fees — which typically run 2 to 5 percent of the loan amount. These are separate from the down payment. A $750,000 loan might carry $15,000 to $37,500 in closing costs.

When down payments are smaller or larger

Some lenders offer commercial loans with down payments as low as 10 to 15 percent, usually for borrowers with strong credit, significant reserves, or properties with excellent income history. These loans often carry higher interest rates to offset the lender's increased risk.

Conversely, down payments can exceed 40 percent for riskier scenarios: a new borrower with limited commercial real estate experience, a property in a declining market, a tenant-dependent building where one major tenant represents most of the income, or a property requiring significant repairs. A lender might also require a larger down payment if you're borrowing from a portfolio lender (a bank that keeps loans on its own books rather than selling them) or a private lender with stricter standards.

SBA loans, which are partially may provide by the Small Business Administration, sometimes allow down payments as low as 10 percent for certain property types, though they come with additional paperwork and restrictions on how you can use the property.

How down payment affects your loan terms

A larger down payment lowers your monthly loan payment because you're borrowing less. It also improves your LTV and DSCR, which can may have access to you for a lower interest rate. If you put 30 percent down instead of 20 percent on a $1 million property, you borrow $700,000 instead of $800,000 — a $100,000 difference that reduces your monthly payment by roughly $600 to $800 depending on the interest rate and loan term.

A larger down payment also gives you more equity in the property from day one. If the property value drops or you need to sell quickly, you're less likely to owe more than the property is worth. Lenders view this as stability and may offer better terms.

The trade-off is that a larger down payment ties up more of your cash. Money in a down payment cannot be used for renovations, working capital, or other investments. Some borrowers choose a smaller down payment to preserve liquidity, accepting a higher monthly payment and interest rate in exchange.

Frequently Asked Questions

Can I use a personal loan or credit card to fund my down payment?

Most commercial lenders require that down payment funds come from your own savings or business accounts, not from other loans. They ask for bank statements showing the money has been there for at least 60 days. Using borrowed money signals financial stress and may disqualify you or require a larger down payment to compensate for the added risk.

What if I don't have enough cash for the down payment?

You have several options: partner with another investor who contributes capital, seek a lender with lower down payment requirements (though expect higher interest rates), explore SBA loans if the property qualifies, or delay the purchase until you've saved more. Some borrowers also negotiate seller financing, where the property owner finances part of the purchase price directly.

Is the down payment refundable if the deal falls through?

Down payment is typically held in escrow (a neutral third-party account) until closing. If you walk away without a valid reason, the seller keeps it. If the lender denies the loan or the appraisal comes in too low, you usually recover the down payment. Your purchase agreement spells out which scenarios trigger a refund — read it carefully before signing.

Do I need the full down payment before I explore for a loan?

Most lenders want proof you have the funds available before they commit to a loan, but you don't need to hand over the money until closing. Bank statements showing the cash in your account are usually sufficient. Some lenders require a letter from your bank confirming the funds are yours and available.

Can I negotiate the down payment amount with the lender?

Yes, especially if you have strong credit, significant reserves, or a property with excellent income history. Lenders have some flexibility within their risk guidelines. However, they won't go below their minimum LTV or DSCR requirements. Shopping around with multiple lenders often reveals different down payment expectations for the same property.