How it works
Net operating income drives the loan amount through a debt service coverage test, much like DSCR on residential rentals. Terms are commonly shorter than the AMORT — a five or ten year term on a 25 year schedule, ending in a BALLOON. Owner-occupied business property prices differently than a pure investment.
A retail property produces $180,000 of NOI and the proposed annual debt service is $135,000. The DSCR is about 1.33. A commercial lender may also test LTV, debt yield, tenant quality, lease rollover and borrower strength before deciding leverage and terms.
Who it can work well for
Business owners buying their own building, and investors acquiring income-producing commercial assets. Loan sizes from a few hundred thousand into the tens of millions.
What lenders actually look at
Commercial underwriting focuses on NOI, DSCR, debt yield, LTV, property quality, leases/tenants, occupancy, market, borrower experience, liquidity, net worth, recourse and exit/refinance risk.
Illustrative lender guidelines
These are educational examples, not universal approval rules. Exact requirements and maximum leverage vary by lender and complete scenario.
| Scenario | Credit / qualifier | Illustrative leverage |
|---|---|---|
| Multifamily / industrial | 680+ | 75-80% |
| Retail / office | 680+ | 70-75% |
| Hospitality / special purpose | 700+ | 60-65% |
| Owner-occupied business | 680+ | up to 90% SBA |
| Amortization | — | 20, 25, or 30 years |
| Term | — | 5-10 years, balloon |
What to watch for
The BALLOON is the risk. Know your exit — refinance, sale, or payoff — before you sign, because the market at maturity is not the market today.
Common misconception: commercial loans are just large residential mortgages. They are underwritten much more directly around the asset’s cash flow, leases, market and business plan.
When this may not be the best choice
A generic commercial mortgage may not be best for an owner-user who qualifies for SBA financing, a transitional property needing bridge debt, or a small 1–4 unit investment that fits DSCR.
Common questions
Related programs
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