Commercial Loan Requirements: What Lenders Look For

Whether you are buying an apartment building, refinancing a retail center, or purchasing space for your own business, every commercial lender asks the same core question: will this loan be repaid? The requirements below are how lenders answer it. Understanding them before you apply saves time, helps you choose the right loan program, and puts you in a stronger position to negotiate terms.

1. Credit Score and Credit History

Your personal credit still matters on a commercial loan, especially if you will personally guarantee it. Many conventional and SBA lenders look for scores in the high 600s or above, while some asset-based programs accept lower scores in exchange for more equity. Lenders also review your history for late payments, collections, bankruptcies, and foreclosures, and they want to see that you manage existing debt responsibly.

2. Down Payment and Loan-to-Value (LTV)

Commercial loans usually require more equity than a home loan. Most programs lend roughly 65% to 80% of the property's value, which means a down payment of about 20% to 35%. The exact figure depends on the property type, its condition, your experience, and the loan program.

Do you have to put 20% down on a commercial loan?

Not always. Twenty percent is a common starting point for stabilized properties, but riskier deals such as vacant buildings, heavy renovations, or ground-up construction often require more. On the other end, SBA loans for owner-occupied property can allow as little as 10% down for qualified business owners.

3. Debt Service Coverage Ratio (DSCR)

For income-producing property, the property's cash flow is often the most important factor. Lenders measure it with the debt service coverage ratio: the property's net operating income divided by its annual loan payments. For commercial properties, many lenders want a DSCR of about 1.20 to 1.25 or higher. Residential rental programs for one- to four-unit properties are often more flexible: many accept a DSCR of 1.0, meaning the rent simply covers the payment, and some offer no-ratio options.

For example, a building with $150,000 in net operating income and $120,000 in annual loan payments has a DSCR of 1.25. The property earns 25% more than it needs to cover the loan. Because DSCR loans qualify you mainly on the property's income, they are a popular option for investors whose personal income is hard to document.

4. The Property Itself

The property is the lender's collateral, so it gets a close look. Expect an appraisal, and often an environmental review and a property condition report. Lenders consider the property type, location, occupancy, lease terms, and tenant quality. Multifamily and well-leased industrial properties are generally easier to finance than special-purpose buildings or properties with high vacancy.

5. Experience and Business Strength

Lenders feel more comfortable when the borrower has owned or managed similar properties before. For an owner-occupied property, they will also review the health of the business: revenue trends, profitability, time in business, and existing debt. A short track record does not rule you out, but it may mean more equity, stronger reserves, or a different loan program.

6. Cash Reserves

Most lenders want to see liquid reserves after closing, often enough to cover several months of loan payments. Reserves show that you can handle a vacancy, a repair, or a slow season without missing a payment.

7. Documentation

The exact list varies by program, but most commercial lenders ask for some combination of the following:

• Personal and business tax returns, typically for the last two to three years

• Year-to-date profit and loss statement and balance sheet

• Personal financial statement showing assets, debts, and net worth

• Bank statements to verify down payment and reserves

• Property rent roll, current leases, and operating statements for income property

• Purchase contract, or the current mortgage statement for a refinance

• Entity documents for the LLC or corporation taking title

• A brief business plan or property plan for owner-occupied, construction, or value-add deals

How Hard Is It to Get a $1,000,000 Commercial Loan?

A $1 million loan is very achievable for a well-prepared borrower with a solid property. Lenders will focus on the same factors described above: enough equity, a property income that covers the payment, good credit, reserves, and relevant experience. Larger loans simply get closer scrutiny, so clean, complete documentation matters more as the loan size grows.

How to Strengthen Your Application

• Check your credit early and correct any errors before you apply.

• Organize your financial statements and tax returns in one place.

• Bring more equity or reserves if your credit or experience is limited.

• Choose a property whose income clearly supports the loan.

• Match the loan program to your situation instead of forcing a fit.

Not Sure Which Program Fits?

Every deal is different. At Only Commercial Loans, we help investors and business owners nationwide match their property and goals to the right financing, from conventional commercial loans to SBA loans and bridge loans. When you're ready, pre-qualify online to see where your deal stands.