What Is the Minimum Down Payment on Commercial Property?

The minimum down payment on commercial property typically runs between 15% and 35% of the purchase price. Conventional bank loans most often require 25%, SBA-backed programs can get an owner-occupant in with 10%, and raw land or special-purpose assets can push the figure to 35% or more. The exact number depends on who’s lending, what you’re buying, whether your own business will operate out of the building, and how your finances look to an underwriter.

What You’ll Put Down by Lender Type

SBA Loans: As Low as 10%

Small Business Administration programs offer the lowest entry point in commercial real estate. Both the SBA 7(a) and SBA 504 programs allow a borrower to purchase property with as little as 10% down, provided the buyer’s business will occupy at least 51% of the space. On a $1,000,000 building, that’s $100,000 out of pocket instead of the $250,000 a conventional loan would demand. The 504 program caps out at $5.5 million per loan, with repayment terms of 10, 20, or 25 years.¹

The 10% figure is a floor, not a guarantee. Two situations each trigger an additional 5% equity requirement: buying a special-purpose property (hotels, car washes, gas stations) and operating as a new business. A startup buying a hotel would need 20% down rather than 10%.²

One boundary worth knowing: SBA loans generally prohibit using borrowed funds for the equity injection. The down payment has to come from your own resources or eligible sources like business profits, not from another loan.

Conventional Banks: Expect 25% to 30%

Traditional commercial banks don’t have the federal guarantees that make SBA lending so friendly on the equity side. Without a government backstop absorbing part of a default, banks demand a larger cushion. Plan for a minimum of 25% down on most conventional commercial mortgages, and 30% or more if the property, the market, or your financial profile introduces extra risk. A bank financing a $500,000 warehouse at 75% LTV would want $125,000 at closing.

Life Insurance Companies: 25% to 35%

Life insurance companies lend on large, stabilized, low-risk assets with long-term tenants and predictable cash flow. Their loan-to-value ratios sit around 65% to 75%, which translates to 25% to 35% down. Minimum loan amounts commonly start at $1 million, and many life companies target $5 million and up.³ A well-leased Class A office tower might attract an attractive long-term fixed rate from a life company; a value-add property that needs repositioning won’t.

Seller Financing: Negotiable, Often 10% to 20%

When a property seller carries the paper, the down payment is whatever the seller will accept. Deals commonly land in the 10% to 20% range. Loan terms are shorter, often three to seven years with a balloon payment, and interest rates run higher than bank rates. Seller financing tends to work for properties that won’t qualify conventionally or for buyers who need to close quickly, but the shorter repayment window usually means refinancing into a traditional loan before the balloon comes due.

How Property Type and Occupancy Change the Number

Owner-Occupied Properties

If your own business will use at least 51% of the building’s square footage, lenders ease up.² Your mortgage payment replaces rent you’d pay somewhere else, and you have a direct operational reason to stay current. Owner-occupied deals qualify for SBA programs at 10% down and generally draw better terms from conventional banks than pure investment properties do.

Investment Properties

Buildings you’ll lease entirely to third-party tenants carry higher down payments because lenders price in vacancy risk. If your anchor tenant leaves six months after closing, the property’s income can drop below what the mortgage requires. Expect 25% to 30% down on a stabilized investment property with strong occupancy, and more if the rent roll has significant vacancy or near-term lease rollover.

Special-Purpose Properties

Gas stations, hotels, car washes, and heavy industrial facilities are hard to repurpose if the business fails. A vacant hotel can’t easily become an office building. Lenders know this and want more equity, so down payments of 30% to 40% are common. Hard-money lenders financing these deals can require 35% to 50%. The SBA 504 program adds 5% to its standard 10% requirement for special-purpose assets, bringing the minimum to 15%.²

Raw Land

Undeveloped land is the riskiest category in commercial lending. It produces no income, is harder to appraise, and can take years to move in a slow market. Federal supervisory guidelines cap raw land loans at 65% LTV, meaning at least 35% down.⁴ In practice, many banks want 40% to 50% for rural or completely undeveloped parcels, and some won’t make raw land loans at all.

Borrower Factors That Raise the Floor

Debt Service Coverage Ratio

The debt service coverage ratio measures whether the property’s income can carry the loan. Lenders divide net operating income by annual debt service; a result of 1.25 means the property earns 25% more than it needs to cover the mortgage. Most lenders want a DSCR between 1.20 and 1.35, depending on property type. If the property falls short, the lender won’t just decline the deal. They’ll shrink the loan until the ratio works, which means a larger down payment to fill the gap.

Interest-only periods don’t help here. Even on loans that start interest-only during lease-up, lenders underwrite the DSCR as though principal payments were already being made, and LTV requirements on those loans tend to be more conservative than on fully amortizing debt.³

Credit and Experience

A personal credit score below 680 will likely push your down payment higher, sometimes by 5% or more. Late payments, collections, or a recent bankruptcy can move a 25% requirement to 30% or beyond.

Experience counts more than most first-time buyers expect. Someone purchasing a 20-unit apartment building for the first time will face tougher scrutiny than an operator who already manages 100 units. Lenders treat industry experience as insurance against the operational mistakes that sink a property’s income in year one, and seasoned operators regularly negotiate 5% to 10% better LTV terms than newcomers on otherwise identical deals.

Why Lenders Quote the Numbers They Do

Federal banking regulators set maximum loan-to-value ratios through the Interagency Guidelines for Real Estate Lending. These limits apply to banks and savings institutions, and lenders exceeding them face additional regulatory scrutiny:

Improved commercial property: 85% LTV (minimum 15% down)
Commercial construction: 80% LTV (minimum 20% down)
Land development: 75% LTV (minimum 25% down)
Raw land: 65% LTV (minimum 35% down)

These are ceilings, not targets.⁴ Most conventional lenders stay 5% to 15% below the supervisory cap, which is why banks quote 70% to 75% LTV on a stabilized office building even though the regulation would technically allow 85%. The gap is the bank’s own risk appetite, and it’s the main reason down payment requirements vary so much from one lender to the next.

Beyond the Down Payment: Closing Costs and Reserves

The down payment is the largest line at closing, but it isn’t the only cash you need. Commercial transactions carry third-party fees that typically add 3% to 6% of the loan amount. On a $1,000,000 purchase with 25% down, budget $280,000 to $310,000 in total cash rather than $250,000. Major fees include:

Commercial appraisal: $2,000 to $4,000, higher on complex or large assets
Phase I Environmental Site Assessment: starting around $1,850, with property size, location, and environmental history pushing the figure higher
Title insurance: varies by state since premiums are regulated at the state level, but expect several thousand dollars on a seven-figure purchase
Legal fees: $3,000 to $10,000 for attorney review of the purchase agreement, loan documents, and title
Loan origination fee: typically 0.5% to 1% of the loan amount

Some of these come out of pocket before closing. Lenders usually require the appraisal and environmental assessment upfront, and those deposits are non-refundable if the deal falls through.

Then there’s the money you need to keep. Most commercial lenders require borrowers to hold cash reserves after closing, typically six to twelve months of debt service payments. If a tenant leaves or a major repair hits in year one, the lender doesn’t want you defaulting because you spent every dollar getting to the closing table. Lenders also underwrite replacement reserves for capital expenditures like roof repairs, HVAC replacement, and parking lot repaving, and those reserves reduce the net operating income used to size your loan.³ Lower calculated NOI means a smaller loan, which means a bigger down payment.

Reducing the Equity Check With Mezzanine Financing

If the required down payment exceeds what you can bring in cash, mezzanine debt can fill part of the gap. Mezzanine financing sits between the senior mortgage and your equity in the capital stack. A typical structure: a bank provides 60% of the purchase price as a first mortgage, a mezzanine lender provides 15%, and you bring 25% in equity. Without the mezzanine piece, you’d need 40%.

The trade-off is cost. Mezzanine debt carries higher interest rates than senior debt, often significantly higher, because the mezzanine lender takes a subordinate position and gets paid after the bank in a default. That risk premium flows to you as the borrower. Mezzanine financing works when the property’s income can support the combined debt service and you need to preserve capital for improvements or operations. It stops working when the property is already tight on cash flow, because adding another layer of debt can push the DSCR below what the senior lender will accept. The senior lender will also want to approve any mezzanine arrangement, since it changes the risk profile of the deal.

1
U.S. Small Business Administration. 504 Loans
2
Regulations.gov. Response to Specific SBA Questions
3
OCC. Commercial Real Estate Lending – Comptrollers Handbook
4
eCFR. 12 CFR Part 365 – Real Estate Lending Standards