How much down payment commercial property needs: 10% to 20% with SBA loans, 30% to 45% on most investment loans, and why income can push it higher.
A commercial real estate down payment is the share of the price a buyer pays in cash or other equity, with a loan covering the rest. Most investment property loans need 30% to 45% down, while a business buying its own building can put down 10% to 20% with an SBA loan.
The exact figure comes from two lender tests, the property type and the borrower. This guide explains how lenders set the number, what each loan program requires, how to calculate your cash to close, and how down payments work for buyers who want to buy or invest in commercial property in Colorado mountain towns.
How Much Down Payment Each Loan Type Needs
The loan program sets the floor. The table shows the usual ranges and where each figure comes from.
| Loan type | Typical down payment | What sets it |
|---|---|---|
| Conventional bank loan, investment property | 30% to 45% | Lender policy; commercial LTVs typically run 55% to 70% |
| Conventional bank loan, owner-occupied | 10% to 25% | Lender policy and the strength of the business |
| SBA 504, established business | 10% | SBA rule, 13 CFR 120.910 |
| SBA 504, newer business or single-purpose building | 15% | SBA rule, 13 CFR 120.910 |
| SBA 504, both conditions | 20% | SBA rule, 13 CFR 120.910 |
| SBA 7(a), start-up or change of ownership | At least 10% equity injection | SBA’s standard operating procedure |
| Freddie Mac small multifamily, terms over 7 years | About 20% | Maximum 80% LTV with a 1.25x coverage ratio |
| Bank loan on raw land | At least 35% | Federal supervisory LTV limit of 65% |
| Bank construction loan, commercial | At least 20% of value | Federal supervisory LTV limit of 80% |
These are starting points. A lender can ask for more than its program minimum.
Why Commercial Down Payments Run Higher Than Home Loans
A home loan is repaid from the borrower’s paycheck. A commercial loan is repaid mainly from the property’s rent or the owner’s business.
That income can drop when a tenant leaves or a business struggles. Lenders protect themselves with more borrower equity, shorter terms and personal guarantees. Commercial loans also lack the government-backed mortgage insurance that lets home buyers put down 3% to 5%.
How Lenders Set Your Down Payment
Lenders size a commercial loan with two tests and lend the lower result. Your down payment is whatever the loan does not cover.
- The loan-to-value (LTV) test. The loan cannot exceed a set share of the property’s value. At a 65% LTV, you bring at least 35%.
- The debt service coverage ratio (DSCR) test. The property’s net operating income must exceed the annual loan payment by a set margin, often 1.20x to 1.35x.
The LTV test is explained in full in how lenders measure loan-to-value, and the income test in the DSCR lenders require. For a down payment, the point is simple: the stricter of the two tests decides how much cash you need.
Price or Appraisal: Whichever Is Lower
Lenders apply the LTV limit to the lower of the purchase price or the appraised value. If you agree to pay more than the appraisal supports, the gap comes out of your pocket.
Suppose you agree to $1,500,000 and the appraisal comes in at $1,400,000. A 70% loan is $980,000, not $1,050,000. Your down payment rises from $450,000 to $520,000. See how a commercial appraisal is done for what drives that number.
The Down Payment Formula With a Worked Example
The basic formula has three steps.
- Loan by LTV = value x maximum LTV.
- Loan by DSCR = (NOI / required DSCR) / annual loan constant.
- Down payment = price – the lower of the two loans.
The annual loan constant is the yearly payment per dollar borrowed. At 7% interest with 25-year amortization, it is about 8.48%. Rates change daily, so ask a lender for a current figure.
Worked example (illustrative figures): two $2,000,000 buildings. The lender allows 65% LTV, a 1.25 minimum DSCR, 7% interest and 25-year amortization.
| Step | Resort town, 6% cap rate | Western Slope town, 7% cap rate |
|---|---|---|
| Net operating income | $120,000 | $140,000 |
| Loan by LTV (65%) | $1,300,000 | $1,300,000 |
| Income available for debt (NOI / 1.25) | $96,000 | $112,000 |
| Loan by DSCR (divide by 8.48%) | About $1,132,000 | About $1,320,000 |
| Loan offered (lower of the two) | About $1,132,000 | $1,300,000 |
| Down payment | About $868,000 (43%) | $700,000 (35%) |
The cap rates mirror RMCRE’s own reports. Steamboat Springs showed a 6% cap rate in the Q2 2026 year-to-date report. Mesa County showed 7.0% for the same period.
The lesson: in low cap rate markets, the income test usually decides the down payment, and it lands well above the LTV minimum. Buyers who plan around “35% down” can be short by six figures.
SBA Loan Down Payments
SBA programs offer the lowest down payments in commercial real estate. Both are for owner-users, not rental investors.
SBA 504 Down Payment
In a standard 504 deal, the borrower puts in 10%, a bank lends 50% and a Certified Development Company lends 40%. SBA’s rule at 13 CFR 120.910 raises the borrower’s share to 15% when the business has operated two years or less, or when the building is limited- or single-purpose. When both apply, it is 20%.
The same rule lets the contribution be cash, property bought with cash, or land that is part of the project. The money can come from any source except another SBA business loan program. The full structure, fees and eligibility are in our guide to SBA 504 loans in Colorado.
SBA 7(a) Down Payment
A 7(a) loan can finance real estate along with working capital, equipment or a business purchase. The maximum 7(a) loan is $5,000,000 under 13 CFR 120.151. A loan for real estate can run up to 25 years under 13 CFR 120.212.
SBA’s operating rules require at least a 10% equity injection for start-ups and for changes of ownership. A seller note can count toward that only if it is on full standby, with no payments for the life of the SBA loan, and covers no more than half of the required injection. For an established business buying its own building, the lender sets the equity, so ask early.
The Occupancy Rule Behind Both Programs
Under 13 CFR 120.131, an SBA borrower buying an existing building must occupy at least 51% of the rentable space. In new construction, the business must occupy at least 60% at once. The rest may be leased to tenants, which helps cover the payment. For the full owner-user picture, read owner-occupied commercial loans in Colorado.
Down Payment by Property Type
| Property type | Down payment tendency | Why |
|---|---|---|
| Multi-tenant retail, office, industrial with long leases | Lower end of the range | Steady, diverse income |
| Small apartment buildings | Often lower; agency loans reach 80% LTV | Deep agency lending market |
| Single-tenant or short-lease buildings | Higher | One vacancy stops all income |
| Hotels, motels and other operating businesses | Higher | Income moves with the season and the operator |
| Special-purpose buildings | Higher | Few other buyers if the lender must sell |
| Raw land | Highest; at least 35% at banks | No income to repay the loan |
The federal supervisory LTV limits for banks, published by the FDIC at 12 CFR Part 365, are 65% for raw land, 75% for land development, 80% for commercial construction and 85% for improved property. Most banks set their own policy well below these ceilings.
Land and construction have their own posts. See what a land loan requires and how construction financing is drawn.
What Can Count Toward the Down Payment
Cash is the most common source, but not the only one. Lenders verify every dollar, so document where it comes from.
- Cash and savings. Lenders usually ask for bank statements covering the past few months and explanations for large deposits.
- Proceeds from a sale. Money from selling another property is common. Investors who sell and buy within an exchange can roll the equity forward; see the 1031 exchange rules and deadlines.
- Land you already own. Under the 504 rule, land that is part of the project counts as the borrower’s contribution.
- Seller financing. A seller note can cut the cash needed, but the bank must allow a second loan. Under SBA 7(a), the standby limits above apply.
- Partner or investor equity. Bringing in partners raises the cash pool. Anyone owning 20% or more usually signs a personal guarantee on SBA loans.
Borrowed down payments are the hard case. Many lenders do not allow a down payment funded by another loan, or they count that loan in the DSCR test. Ask the lender before you sign a purchase contract.
Cash Needed Beyond the Down Payment
The down payment is only part of the cash to close. Budget for these on top.
- Closing costs. Title insurance, survey, attorney fees, recording and lender fees. The full list is in commercial real estate closing costs.
- Third-party reports. The appraisal, environmental report and property inspection, often paid before closing.
- Loan fees. Origination fees and, for SBA loans, guarantee fees. SBA 504 lets many project costs be financed inside the loan.
- Reserves. Lenders often want cash left in the bank after closing, for both the property and the borrower.
- Repairs and tenant costs. A roof, a parking lot or tenant improvements for a new lease.
Worked example (illustrative figures): a $1,200,000 owner-user building with a conventional loan at 25% down.
| Item | Amount |
|---|---|
| Down payment (25%) | $300,000 |
| Closing costs and reports, estimated | $30,000 |
| Reserves the lender wants after closing, estimated | $40,000 |
| Total cash needed | $370,000 |
How to Lower Your Down Payment
These routes can reduce the cash required. Each has a trade-off.
- Use an SBA program if the business occupies the building. 504 and 7(a) offer the lowest equity.
- Negotiate seller financing. A seller note behind the bank loan can bridge part of the gap, if the bank agrees.
- Buy in a stronger income position. Higher NOI or a longer lease raises the DSCR loan amount.
- Pay a price the appraisal supports. Paying over value shifts the gap to your cash.
- Choose a longer amortization. A lower payment can raise the DSCR loan, though it builds equity more slowly.
- Bring in partners. More equity sources, but shared control and returns.
Common Down Payment Mistakes
- Planning on the LTV number alone. In resort markets the income test often demands far more cash.
- Forgetting closing costs and reserves. A buyer with exactly the down payment is short at closing.
- Moving money at the last minute. Unexplained deposits slow underwriting.
- Assuming investment property qualifies for SBA. SBA programs exclude rental investment buildings.
- Overpaying the appraisal. Every dollar above appraised value comes from your cash.
- Draining the business. A low down payment that leaves no operating cash is a false saving.
For tax treatment of the equity you put in, or how to structure ownership, ask a CPA or attorney.
Down Payments in Colorado Mountain and Resort Markets
Colorado’s commercial markets split into two broad groups, and the down payment math follows.
In resort towns, prices are high and cap rates are low. RMCRE’s Roaring Fork January 2026 snapshot showed cap rates of about 4% to 6% across the Aspen, Basalt and Carbondale corridor. At those yields, the DSCR test often holds the loan near or below half of value, so buyers bring well over 40%.
Office condos in that corridor traded under $1 million in January 2026. For an owner-user, a 504 loan at 10% down on a $900,000 condo means $90,000 down, against $225,000 at 25%.
On the Western Slope, cap rates run higher and the tests line up better. RMCRE’s Mesa County Q2 2026 year-to-date report showed a 7.0% cap rate and commercial sales volume of about $109.6 million, up 15.49%. Montrose reported an 8% cap rate for Q2 2026, and Chaffee County 6.5%. In Grand Junction and Montrose, a buyer with steady income can often borrow close to the lender’s LTV limit.
Hotels, motels and self storage, both common in Colorado mountain towns, usually draw larger down payments because income swings with tourism. The listings on Colorado hotels and motels for sale show the price range buyers face.
Colorado property tax also enters the income test. Most commercial buildings are assessed at 25% of actual value for 2026, down from 27% in 2025. A lower tax bill raises NOI, which supports a larger loan and a smaller down payment.
Frequently Asked Questions
What is the minimum down payment for commercial real estate?
About 10% through an SBA 504 loan for an established business that occupies the building. SBA 7(a) loans also start near 10% for start-ups and business purchases. Investment property usually needs 30% or more.
Can you buy commercial property with no money down?
Rarely. Lenders want the borrower to have equity at risk, and SBA sets minimum contributions. Seller financing, land you already own or partner equity can reduce the cash needed, but some equity almost always goes in.
Is the down payment based on the price or the appraisal?
Lenders apply their limit to the lower of the two. If the appraisal comes in below the price, the buyer covers the gap in cash or renegotiates the price.
Why is my down payment higher than the lender’s LTV suggests?
The income test is likely deciding the loan. When the property’s NOI cannot cover the payment at the required DSCR, the lender cuts the loan and the buyer brings more equity. This is common in low cap rate resort markets.
Can I use a 1031 exchange for the down payment?
Yes, investors often use exchange proceeds as equity for the replacement property. The exchange has strict timing and reinvestment rules, so work with a qualified intermediary and a CPA before selling.
Does a commercial down payment include closing costs?
No. Closing costs, reports, loan fees and lender reserves come on top. Some SBA 504 project costs can be financed inside the loan.
Plan Your Down Payment With RMCRE
Rocky Mountain Commercial Real Estate (RMCRE) is a network of partner brokers across Colorado mountain towns, working together since 2010. We help buyers and investors price commercial property against local income, so the down payment is known before an offer goes in.
Our brokers can share recent sales, cap rates and lender contacts in each town. Learn about our investment services for buyers, or contact an RMCRE broker to talk through your purchase.
