1. Know what lenders are really underwriting
A home loan is mostly about you: your income and credit. A commercial loan is mostly about the property and its cash flow, with you as the backup. Lenders size the loan with two tests and take the lower result:
- Loan-to-value (LTV): the loan divided by the appraised value. Most lenders cap it between 65% and 80%.
- Debt service coverage ratio (DSCR): net operating income divided by the annual loan payment. Most want 1.20x to 1.35x.
You can test both right now with our DSCR calculator.
2. Pick the right type of loan
The right loan depends on the property and your plan for it. A stabilized apartment building fits a long-term bank or agency loan. A building that needs work fits a bridge loan. A business buying its own building should look at SBA 504. If you're unsure, that's the first thing a good broker sorts out.
3. Gather your documents early
Deals slow down when paperwork trickles in. Pull together the purchase contract, rent roll, operating statements, tax returns and a personal financial statement before you apply. Use our document checklist.
4. Tell the property's story
Lenders read hundreds of deals. Yours stands out when the summary explains the opportunity, the risks and your plan in a page or two. Vacancy, a low appraisal or a credit issue is far less damaging when you explain it up front than when an underwriter finds it.
5. Get more than one quote
Commercial terms vary widely between lenders: rate, leverage, recourse, prepayment penalties and fees. Applying to lenders one by one is slow and each one sees only its own box. A broker shops the deal across many lenders at once. At OCC Lending, you get written terms within 48 hours.
6. Compare the whole offer, not just the rate
A lower rate with a heavy prepayment penalty can cost more than a slightly higher rate you can refinance freely. Look at leverage, term, amortization, recourse, reserves and closing costs together.
7. Stay ahead of third-party reports
After you sign a term sheet, the lender orders an appraisal, an environmental report and often a property condition report. Respond quickly to questions, keep your escrow and title company in the loop, and watch your contract deadlines.