What do a dentist's office, a 40-unit apartment building, and a warehouse leased to a regional distributor have in common? All three are commercial property, and all three can be financed — sometimes by the same lender. But they will not be financed the same way.
That is the part that surprises many first-time buyers. Commercial real estate is not one asset class; it is a family of them, and lenders sort properties by how income is produced, how durable that income is, and how easily the building could be repurposed or resold. Those judgments drive everything that follows: the loan program, the down payment, the term, and the documentation you will be asked to produce. What follows is a practical walkthrough of the major property types, the financing options that fit them, and a checklist for choosing between them.
Why the Property Type Changes Everything About Financing
When you apply for a commercial real estate loan, the first question isn't "how much?" It's "what is it?"
A loan against a warehouse leased to three logistics tenants and a loan against a single-tenant restaurant sit at opposite ends of a risk spectrum, even if the loan amounts are identical. Underwriters think about one thing: if they had to take the building back, who would pay rent next? A generic building with many possible tenants answers that question well. A building that only works as a restaurant does not.
Three numbers do most of the work in commercial underwriting: loan-to-value (LTV, how much of the property's value the loan represents), debt-service coverage ratio (DSCR, how many times over the property's net income covers its debt payments), and the strength of the borrower. Property type feeds directly into all three. Now, the main categories.
The Major Commercial Property Types and What Lenders See
Office
The most scrutinized category in commercial lending right now. Lenders focus on the tenant roster, the lease expiration schedule — "rollover" — and the weighted average lease term. A building anchored by a government agency on a ten-year lease is a different credit than one with six small tenants on month-to-month deals. LTV caps for office commonly run lower than for industrial, and some banks have stepped back from the sector entirely.
Retail
Retail splits into single-tenant net lease — one national tenant responsible for taxes, insurance, and maintenance — and multi-tenant centers. With multi-tenant, lenders scrutinize anchors, co-tenancy clauses, and concentration: what share of rent comes from any single tenant. Unanchored strip centers with local tenants commonly need stronger DSCR or a bank that knows the market street by street.
Industrial and Warehouse
The lender favorite of the past decade, for defensible reasons: long leases, modest tenant-improvement costs, and steady demand. Small-bay multi-tenant industrial — units under roughly 10,000 square feet — has become a favorite of investors partly because it finances so well.
Multifamily (Five Units and Up)
Residential in use, commercial in lending. Below five units you are typically in consumer-loan territory; at five units and up, lenders underwrite the property's income as a business, and agency programs from Fannie Mae and Freddie Mac dominate larger loans. Occupancy and DSCR are essentially the entire conversation.
Mixed-Use
Storefronts or offices on the ground floor with apartments above. Lenders ask what percentage of income is residential versus commercial. When residential income clearly dominates, a deal may be treated like a multifamily loan; if not, expect commercial treatment and correspondingly tougher terms. Mixed-use financing often comes down to which income stream the lender trusts more.
Special-Purpose Properties
Gas stations, restaurants, churches, car washes, self-storage, banquet halls. These buildings work for one use, which makes them hard to resell vacant — and lenders price that difficulty into the terms. Environmental questions matter for gas stations and dry cleaners. Deals in this category commonly run through SBA programs or local banks that understand the niche.
The Financing Options, Explained in Plain Terms
Conventional Bank Loans
The default commercial mortgage. Down payments commonly run 20–30% for investor deals, with amortization over 20–25 years but a fixed-rate term that is often shorter — five, seven, or ten years — meaning a balloon or reset down the road. Underwriting leans on DSCR plus the borrower's financial strength. This is where pricing is usually best if your profile and property are mainstream.
SBA 504
Built for owner-occupants. The structure stacks a bank or CDC first lien of about 50%, a CDC debenture for 40%, and a borrower down payment of typically 10% — the "90% financing" you hear quoted. The CDC portion is capped at $5.5M and priced off the 10-year Treasury. Owner occupancy is commonly required at 51% or more for existing buildings. If you will run your business from the property, start with the SBA loan options before considering anything else.
SBA 7(a)
The flexible workhorse of government-guaranteed lending: loan amounts up to $5M, with the SBA guaranteeing 75–85% of the balance depending on size, and proceeds usable for real estate, equipment, working capital, and refinancing. Down payments commonly land around 10–15%. The trade-off is paperwork and processing time.
DSCR Loans
Investor loans that qualify on the property's income rather than your tax returns. The lender divides net operating income by debt service, and most programs want a minimum of 1.20–1.25x. Because the income documentation is lighter, closings commonly happen in weeks rather than months — see how DSCR loans are structured. Pricing commonly sits above conventional bank debt, which is the trade for speed and flexibility.
Bridge Loans
Short-term financing, typically 6–36 months, often interest-only, used when you need speed or the property needs repositioning before it can support permanent debt. The classic play: acquire with a bridge loan, stabilize occupancy, then refinance into DSCR or bank financing. The interest-only structure is what makes aggressive repositioning math work in the near term.
Hard Money Loans
The fast, expensive end of the market: rates commonly quoted in the 9–12% range, points typically 2–4, terms commonly 6–24 months, and sizing based on as-is value. This is the money you use when the auction is Thursday or thirty days decides whether the deal happens. Hard money loans are a tool, not a destination — have the exit mapped before you close.
Creative Structures
Seller carry-back notes, assumable loans, partnerships. Less common, but effective at closing the gap between what a bank will lend and what the seller needs — especially on special-purpose properties where conventional financing stalls. A seller note behind a bank loan can turn a deal that fails at 75% LTV into one that closes.
Comparing the Options Side by Side
| Financing option | Typical use case | Down payment / structure | Typical term | Speed |
|---|---|---|---|---|
| Conventional bank | Strong borrower, mainstream property | 20–30% down (investor) | 5–10 yr fixed, amortized up to 25 | Moderate |
| SBA 504 | Owner-occupied purchase or expansion | ~10% down; 90% financing | 10–20 yr fixed | Slower |
| SBA 7(a) | Owner-users needing flexibility | Commonly 10–15% down | Up to 25 yr (real estate) | Slower |
| DSCR loan | Income property, investor-focused | Commonly 20–25% down | 30-yr amortization | Fast |
| Bridge loan | Speed, repositioning, lease-up | Commonly 25–35% equity | 6–36 months | Fast |
| Hard money | Urgent or distressed deals | Commonly 30–35% down | 6–24 months | Fastest |
| Seller financing | Gap-filling, special situations | Negotiated | Negotiated | Varies |
Which Financing Fits Which Property Type
| Property type | What lenders focus on | Financing that commonly fits |
|---|---|---|
| Office | Tenant quality, rollover, lease term | Conventional; bridge for repositioning |
| Retail (single-tenant net lease) | Tenant credit, lease length | Conventional; DSCR |
| Retail (multi-tenant) | Anchor strength, rent concentration | Bank; SBA if owner-occupied; DSCR |
| Industrial | Lease terms, clear height, bay sizes | Conventional; DSCR; SBA 504 for owner-users |
| Multifamily, 5+ units | Occupancy, DSCR | Agency programs; DSCR; bank |
| Mixed-use | Residential vs commercial income mix | Bank; SBA; DSCR, depending on the mix |
| Special purpose | Resale difficulty, environmental issues | SBA; local bank; hard money as a bridge |
How to Choose: Five Questions That Decide It
- Will you occupy at least half the building? If yes, SBA 504 is usually the cheapest capital on the table — 90% financing with a long fixed rate is hard to beat anywhere else.
- Does the property already cover its debt? Compute net operating income against proposed debt service. At 1.25x or better, conventional and DSCR lenders will compete for the deal. Below 1.0x, you are in bridge or hard money territory while you fix the income.
- How fast do you need to close? Bank and SBA timelines are commonly measured in weeks to a few months. If the seller wants a 21-day close, plan for bridge or hard money first and refinance later.
- What is the exit? Every short-term loan needs a takeout — a refinance into permanent debt — and that takeout should be identified before you close, not after.
- How unusual is the property? The more special-purpose the building, the more the deal depends on a lender who understands the niche — which usually means SBA or a local relationship bank, not a national program.
One more filter worth applying: compare the whole package, not the rate alone. Points, origination fees, prepayment penalties, recourse versus non-recourse, and reserve requirements can move the real cost more than a modest difference in pricing. This is where investment-property financing conversations get practical — a lender who knows your plans can tell you which of those line items actually matters on your deal.
Your Pre-Application Checklist
- Write down the plan in one paragraph: occupy or invest, intended hold period, exit strategy.
- Assemble the file: lease agreements and rent roll, two to three years of profit-and-loss statements and tax returns, entity documents, insurance certificate, and the property's operating history.
- Run your own numbers first: purchase price, net operating income, target LTV, and DSCR at the loan amount you are considering.
- Get pre-qualified before you shop. A real maximum from a lender — not a guess — strengthens your offer and keeps you from spending diligence money on deals you cannot close.
- Compare total cost across every offer you receive: rate, points, fees, prepayment penalties, recourse, and reserve requirements.
- For any short-term financing, line up the takeout path before you close — the refinance should be a plan, not a hope.
Every one of these decisions comes back to three inputs: the property, the plan, and your timeline — change one, and the right structure changes with it. Describe your deal to Tesni, LLC through the contact page and our team will lay the realistic options out side by side for your specific situation.