A commercial loan is financing provided to businesses or investors for purchasing, developing, renovating, or refinancing commercial real estate.
Unlike residential mortgages (for single-family homes), commercial loans are designed for income-producing properties or business-use facilities such as offices, retail outlets, industrial units, hotels, or multi-unit residential buildings.
These loans are underwritten based on business financials, projected cash flows, property income, and collateral, as much as personal or business credit history.
The business should have a stable track record, typically at least 2 years of profitable operations or consistent revenue or income statements.
Demonstrated cash flow sufficient to cover debt service (often via Debt Service Coverage Ratio, DSCR). Lenders commonly require DSCR ratios of 1.20× to 1.30× or higher, meaning net operating income of the property must exceed debt obligations by 20-30%. [Based on typical CRE loan standards.]
Strong financial statements: tax returns, profit & loss statements, balance sheets, property appraisal, and often projections.
The property being financed should meet certain standards in location, condition, and occupancy (for example, for owner-occupied or income-producing use).
Limits: Loan-to-Value (LTV) ratios are often lower than for residential loans. Many lenders require LTV between 65%-80%, meaning down payment or equity injection of 20-35%.
While credit score alone isn’t the sole factor, it plays a significant role in approval and interest rate determination:
While credit score alone isn’t the sole factor, it plays a significant role in approval and interest rate determination:
Prestian.ai helps you see realistic down payment scenarios, simulate impact of varying down payment sizes, and connect you with lenders who offer more flexible equity requirements.
