How to Finance Commercial Property

Financing commercial property involves more complexity and more options than residential real estate. The right financing structure depends on the deal type: owner-occupied building, investment property, ground-up construction, or a refinance of existing debt.

For owner-occupied commercial properties, SBA 504 and SBA 7(a) loans offer the most favorable terms with down payments as low as 10% and terms up to 25 years. These programs are specifically designed for small businesses purchasing their own facilities and offer below-market rates due to the SBA guarantee.

Investment properties that generate rental income can be financed through conventional bank loans, CMBS programs, or agency lending (Fannie Mae/Freddie Mac for multifamily). The choice of program depends on property size, type, and stabilization level. DSCR loans offer a streamlined option for investors who prefer to qualify based on property income rather than personal tax documentation.

Value-add and transitional properties that aren't yet stabilized typically require bridge financing to fund the acquisition and business plan execution, followed by a refinance into permanent debt once the property is stabilized. This two-step approach is the standard path for investors acquiring properties that need renovation, lease-up, or repositioning.

Frequently Asked Questions