Commercial down payments typically range from 20 to 30 percent of the property purchase price, though some lenders accept as little as 10 percent and others require 40 percent or more

The exact amount depends on the type of property, the lender's risk assessment, your credit history, and the loan program. A bank financing an office building in a stable market may accept 20 percent down, while a lender financing a restaurant startup in a new location might require 35 percent. SBA loans (backed by the Small Business Administration) often allow 10 percent down on certain property types, making them lower than conventional commercial mortgages.

Unlike residential mortgages, which follow fairly standardized rules, commercial lending is negotiable. Your down payment is one of several factors a lender weighs—they also look at your business cash flow, the property's income potential, your personal credit score, and whether you have skin in the game. A larger down payment signals lower risk to the lender and can improve your loan terms, including the interest rate and whether you avoid mortgage insurance.

Key Takeaways

  • Commercial down payments range from 10 to 40 percent depending on property type, lender, and loan program, with 20 to 25 percent most common.
  • SBA loans often allow 10 percent down, while conventional bank loans typically require 20 to 30 percent.
  • Putting down more money can lower your interest rate and remove the need for commercial mortgage insurance.
  • Lenders assess your business income, the property's rental income or revenue potential, and your personal credit score alongside your down payment amount.

How down payment requirements differ by property type

Office buildings, retail centers, and apartment complexes have different risk profiles, so lenders set different down payment floors. A multifamily property (four or more units) with a long lease history and stable tenants may only require 20 percent down. A single-tenant office building leased to an established corporation carries similar risk. A vacant lot or a property you plan to develop, by contrast, may require 35 to 40 percent down because the lender cannot rely on existing income to repay the loan.

Hospitality properties—hotels, motels, bed-and-breakfasts—typically require 25 to 35 percent down because occupancy rates fluctuate with the economy and seasons. Industrial warehouses leased to creditworthy tenants on long-term leases may sit at 20 to 25 percent. If you are buying a property that needs renovation or repositioning (changing its use or tenant base), expect to put down 30 to 40 percent because the lender is betting on your execution, not on current income.

Down payment requirements for SBA loans versus conventional loans

SBA 7(a) loans, the most common Small Business Administration program for real estate, allow down payments as low as 10 percent on owner-occupied commercial property. This makes them significantly more accessible than conventional bank loans. However, the SBA has strict rules: the property must be owner-occupied (you or your business must use at least 51 percent of it), and the loan amount cannot exceed $5 million. The SBA also charges may provide fees and requires you to personally may provide the loan, meaning your personal assets are on the line if the business fails.

Conventional commercial mortgages from banks and non-bank lenders typically require 20 to 30 percent down and have fewer restrictions on property use. You can finance investment properties (where you rent to tenants) more easily with a conventional loan, and you can borrow larger amounts. The trade-off is that you need more cash upfront and your credit and business financials must be stronger. Some portfolio lenders (banks that keep loans on their own books rather than selling them) will go as low as 15 percent down if your credit and cash flow are excellent.

What happens if you put down less than 20 percent

Putting down less than 20 percent is possible but comes with costs. Most lenders will charge you commercial mortgage insurance (CMI), which protects them if you default. This insurance premium is added to your monthly payment and typically ranges from 0.5 to 1.5 percent of the loan amount per year, depending on how much you are borrowing relative to the property value. A $1 million loan with CMI might cost an extra $5,000 to $15,000 per year.

Lower down payments also mean higher interest rates. A lender offering 6.5 percent on a 25 percent down payment might charge 7.0 or 7.5 percent if you put down only 10 percent. Over a 20-year loan, that difference adds up to tens of thousands of dollars. Some lenders will not finance below 15 percent down at all, or will only do so for owner-occupied properties or through SBA programs. If you are short on cash, an SBA loan is usually cheaper than a conventional loan with CMI.

How lenders calculate the down payment requirement

Lenders use the property's appraised value or the purchase price, whichever is lower, to calculate your down payment. If you are buying a building for $500,000 but it appraises at $450,000, your down payment is based on $450,000. This protects the lender from overpaying and protects you from borrowing more than the property is worth. If the appraisal comes in low, you have three options: put down more cash to make up the difference, renegotiate the purchase price, or walk away.

Lenders also look at the loan-to-value ratio (LTV), which is the loan amount divided by the property value. A 20 percent down payment means an 80 percent LTV. A 30 percent down payment means a 70 percent LTV. Most lenders cap LTV at 75 to 80 percent, meaning they will not lend more than that percentage of the property value no matter how strong your credit is. If you want to borrow more, you must put down more cash.

Down payment sources and documentation

Lenders require proof that your down payment comes from legitimate sources. Acceptable sources include your business savings account, personal savings, a loan from a family member (documented in writing), or proceeds from selling another property. Most lenders will not allow you to borrow your down payment from another lender—they want to see that you have real capital at risk. Some will allow a portion of the down payment to come from a business line of credit, but this varies by lender.

You will need to provide bank statements (usually the last two to three months) showing the funds in your account before closing. If you received a large deposit recently, the lender may ask where it came from. If you are using a gift from a family member, you will need a signed gift letter stating that the money does not need to be repaid. If you are using proceeds from a recent sale, you will need closing documents from that transaction. The lender is verifying that the money is real and that you are not borrowing it in a way that increases your debt obligations.

Negotiating down payment with your lender

Down payment requirements are not always fixed. If you have strong personal credit (680 or above), solid business cash flow, and the property is in a desirable location with stable tenants, you may be able to negotiate a lower down payment than the lender's standard requirement. Bringing multiple lenders into the conversation also helps—if one will do 20 percent down and another requires 25 percent, you have leverage to ask the second lender to match.

Putting down more than required can also work in your favor. If you put down 30 or 35 percent instead of the minimum 20 percent, you may may have access to for a lower interest rate, avoid mortgage insurance, or get faster approval. The lender sees less risk and may be willing to move faster. Before you commit to a down payment amount, ask the lender for a rate sheet showing how the rate changes at different LTV levels. This helps you decide whether putting down an extra 5 or 10 percent is worth the interest savings over the life of the loan.

Frequently Asked Questions

Can I use a home equity line of credit for my commercial down payment?

Some lenders allow it, but most require that you document the source and that it does not increase your personal debt obligations beyond what they have already approved. A HELOC counts as a debt on your personal credit report, which can lower your credit score and reduce how much the lender is willing to lend you. Ask the lender upfront whether a HELOC is acceptable before you open one.

What if the property appraises for less than the purchase price?

The lender bases the down payment on the lower appraisal value. If you agreed to pay $500,000 but it appraises at $450,000, your down payment is now calculated on $450,000. You can either put down more cash to cover the gap, renegotiate the purchase price with the seller, or withdraw from the deal. Most purchase agreements include an appraisal contingency that lets you back out if the appraisal is too low.

Do I need a larger down payment if I have bad credit?

Yes, typically. A credit score below 650 signals risk to lenders, so they often require 25 to 35 percent down instead of 20 percent. A score below 600 may make you ineligible for conventional loans altogether, though some SBA lenders will work with lower scores if your business has strong cash flow. Improving your credit before applying can lower your down payment requirement and interest rate.

Is the down payment the same as closing costs?

No. The down payment is your equity stake in the property. Closing costs are separate fees for appraisal, title insurance, legal review, and lender fees, typically ranging from 2 to 5 percent of the loan amount. You pay both at closing. If you are putting down $100,000 and closing costs are $30,000, you need $130,000 in cash at closing.

Can I get a commercial loan with no money down?

Rarely, and usually only in specific circumstances. Some SBA lenders offer 100 percent financing on owner-occupied properties if you have exceptional credit and strong business cash flow, but this is uncommon. Most lenders require at least 10 percent down. If you have no cash, an SBA loan at 10 percent down is usually your best option, or you may need to wait until you have saved more capital.