You cannot get a HELOC on a commercial property in the traditional sense, because home equity lines of credit are residential lending products. The commercial equivalent is a commercial equity line of credit, sometimes called a CELOC. It works on the same revolving-credit principle: the lender places a lien on your commercial property, sets a credit limit based on the equity you’ve built, and lets you draw and repay as needed. Most lenders cap borrowing at 65% to 75% of the appraised value minus existing liens, and they want to see a debt service coverage ratio of at least 1.25 before they’ll approve you.
How a Commercial Equity Line Differs From a Residential HELOC
A residential HELOC is underwritten mostly on your personal income and credit. A commercial equity line inverts that priority. The property’s income stream is what the lender cares about first: rent rolls, occupancy, and net operating income drive the decision. Your personal finances still matter, but they support the picture rather than define it.
The terms are tighter across the board. A residential HELOC might reach 85% or 90% of your home’s value; on the commercial side, federal banking regulators set a supervisory ceiling of 85% for improved commercial property, and most lenders stay well below that at 65% to 75% combined loan-to-value for their own risk reasons. Rates run higher too. Commercial lines are almost always variable, tied to prime or SOFR with a spread of roughly 2 to 5 percentage points on top. Bank-originated lines typically fall between 7% and 12%; non-bank lenders charge more.
Beyond pricing, the relationship is heavier. Documentation demands are deeper, closing takes longer, and lender oversight of your financials continues for the life of the credit line rather than ending at closing.
Which Commercial Properties Qualify
Lenders look at zoning and income-producing capacity. The property types that routinely qualify include:
- Multifamily buildings with five or more units. Standard lending guidelines classify these as commercial, so a six-unit apartment building follows commercial underwriting even though every unit is a residence.
- Office buildings, from single-tenant professional space to multi-tenant complexes. Lenders scrutinize tenant concentration when one tenant accounts for a large share of rent.
- Retail properties such as storefronts, strip malls, and shopping centers with lease-based revenue.
- Industrial and warehouse space, provided zoning confirms commercial or industrial use.
- Mixed-use buildings with ground-floor retail and residential above, if the commercial portion meets the lender’s threshold.
Zoning has to match actual use. If your building sits in a zone that doesn’t align with how it operates, that mismatch has to be resolved before any lender will move forward.
What Lenders Look At
Debt Service Coverage Ratio
The single most important number is the debt service coverage ratio. DSCR divides the property’s annual net operating income by its total annual debt obligations, including the proposed credit line. A DSCR of 1.25 means the property generates 25% more income than it needs to service all its debt. That’s the typical floor for approval. Riskier property types or thinner borrower profiles can push the requirement higher. Anything below 1.0 means the property can’t cover its own debts, which is an automatic disqualifier.
Loan-to-Value Limits
Federal interagency guidelines set supervisory loan-to-value ceilings banks are not supposed to exceed: 85% for improved commercial property, 80% for commercial construction, 75% for land development, and 65% for raw land. Most lenders keep their own commercial equity line limits well below those ceilings, usually 65% to 75% of value across all liens combined. Commercial property values swing more than residential values do, and lender caution reflects that.
Credit and Personal Guarantees
Even when an LLC or corporation owns the property, lenders pull the personal credit scores of every guarantor. Scores above 680 are the usual minimum for competitive terms. Below that, expect higher rates, lower limits, or denial.
A personal guarantee is standard for anyone with a 20% or greater ownership stake. That guarantee pledges your individual assets, including your home, savings, and investments, as backup if the property’s income stops covering the debt. If the LLC declares bankruptcy, the lender can still pursue you personally unless you also file. Experienced investors with strong portfolios sometimes negotiate non-recourse terms that confine the lender’s recovery to the property itself. Newer borrowers rarely get that option.
Business Credit
The entity’s own credit history matters too. Lenders check commercial bureaus like Dun & Bradstreet for payment history and outstanding obligations. A thin or weak business file doesn’t automatically end the deal, but it shifts more weight onto the personal guarantee and can tighten the terms you’re offered.
Documentation
Commercial applications require a heavier document package than residential ones. Plan to provide current rent rolls, full copies of executed leases, two to three years of business tax returns, year-to-date profit and loss statements, and personal financial statements for every 20%-plus guarantor. Multi-tenant properties often require tenant estoppel certificates confirming each lease’s terms and flagging any side agreements.
You’ll also need a Phase I Environmental Site Assessment, which is a records review and site inspection rather than physical testing. If the Phase I flags recognized environmental conditions, the lender will require a Phase II with actual soil and groundwater sampling. This step exists because federal law under CERCLA can hold current owners strictly liable for contamination caused by prior owners, and lenders want to protect their collateral against that exposure.
Rates, Fees, and Prepayment Penalties
Beyond the interest rate itself, expect origination fees of 1% to 2% of the credit line, lender’s attorney fees, and a commercial appraisal running $2,000 to $10,000 depending on the property’s size and complexity. Some jurisdictions add mortgage recording taxes on the lien amount, and county recording fees layer on top. These costs are paid at closing or deducted from your first draw.
Prepayment penalties are common. The typical structure is a step-down: 5% of the outstanding balance in year one, 4% in year two, and so on to 1% in year five. Some lenders use yield maintenance instead, which calculates the penalty from the gap between your loan rate and current Treasury yields, so penalties grow larger as rates fall. Read this section closely before signing. If you sell or refinance in the early years, these charges can be significant.
Draw Period and Repayment
Commercial equity lines run in two phases. The draw period typically lasts 5 to 10 years. During that time you can borrow and repay freely, and your monthly payments usually cover interest only on whatever balance is outstanding. You don’t pay interest on undrawn capacity, which is the main advantage over a term loan.
When the draw period ends, the repayment period starts. New draws stop, and payments include both principal and interest. Repayment periods commonly run 10 to 20 years. Some lenders instead structure the line with a balloon payment at the end of the draw period, forcing you to pay off or refinance the full balance at that point. Confirm which structure applies before you close. A balloon payment you didn’t plan for can push you into a refinance on bad terms.
Tax Treatment of the Interest
Interest on a commercial equity line is generally deductible as a business expense, but Section 163(j) of the federal tax code caps the deduction. For businesses that aren’t exempt, deductible business interest in any tax year is limited to business interest income plus 30% of adjusted taxable income. For tax years beginning after December 31, 2024, which includes 2026, adjusted taxable income no longer allows add-backs for depreciation, amortization, or depletion. That change tightens the cap for capital-intensive businesses compared with earlier years.
Two exemptions matter. Small businesses with average annual gross receipts of $31 million or less over the prior three years (adjusted annually for inflation) are exempt entirely. A real property trade or business can also elect out by filing an election statement with its return. The tradeoff on that election is that the property has to be depreciated under the Alternative Depreciation System, which stretches out the recovery period. Whether the election is worth it depends on your specific numbers, and it’s a decision to work through with a CPA who handles real estate.
What You’re Committing to After Closing
Approval is not the end of the lender relationship. Commercial credit facilities carry loan covenants, meaning ongoing financial benchmarks and reporting obligations that stay in effect for the life of the line. The most common covenant is a minimum DSCR, often the same 1.25 threshold used at underwriting. If the property’s income drops and the ratio slips below that level, you’re in technical default even without missing a payment.
Lenders review compliance at least annually after receiving year-end financials. Expect to submit updated tax returns, profit and loss statements, rent rolls, and insurance certificates each year, and quarterly reporting on larger lines. Missing these submissions can itself trigger a covenant violation.
A technical default from a DSCR shortfall doesn’t usually mean the lender pulls the line on the spot. The more common outcome is a loan amendment with a waiver fee and tighter terms going forward: reduced available credit, additional collateral, or reset covenants. But the lender now has leverage it didn’t have before, and the amendment will cost you money and flexibility. Keeping the property well-occupied and the reporting current is the simplest way to avoid that outcome.