Question 1

How is a commercial mortgage different from a residential one?

Accepted Answer

Residential mortgages are underwritten on the borrower's income, credit, and debt. Commercial mortgages are primarily underwritten on the property — its net operating income, occupancy rate, lease quality, and market position. Your personal finances still matter (most lenders require a personal guarantee and want your net worth ≥ the loan amount), but a property with strong, stable income from creditworthy tenants will get better terms than a borrower with perfect credit on a vacant building. Loan terms are also shorter (5–10 year terms vs. 30-year residential), and virtually all commercial loans have a balloon payment at the end of the term.

Question 2

What is DSCR and how is it calculated?

Accepted Answer

Debt Service Coverage Ratio (DSCR) = Net Operating Income ÷ Annual Debt Service. Example: a property with $150,000 NOI and $120,000 in annual mortgage payments has a DSCR of 1.25. Most conventional commercial lenders require a minimum 1.20–1.25 DSCR. CMBS lenders often require 1.25–1.30+. A DSCR below 1.0 means the property can't cover its own mortgage — almost no lender will finance that without significant reserves or additional collateral. When evaluating a deal, calculate the DSCR at the actual purchase price AND at the appraiser's cap-rate value to identify any pricing risk.

Question 3

What is the minimum down payment for commercial property?

Accepted Answer

Minimum down payments by program: SBA 504 (owner-occupied) — as low as 10%. SBA 7(a) (owner-occupied) — 10–15%. Conventional investment property — 20–25% for multifamily and industrial, 25–30% for office/retail, 30–35% for hospitality and special-use. CMBS — 25–35%. Life company — 30–40%. Bridge/debt fund — varies by deal; most want 20–30% equity. Down payment requirements go up for properties with vacancy, shorter lease terms, or perceived market risk. Lenders also often require 6–12 months of debt service in reserve after closing.

Question 4

What is a balloon payment and how do I plan for it?

Accepted Answer

A commercial loan balloon payment is the remaining principal balance due at the end of the loan term, which is shorter than the amortization schedule. A 10-year term with 25-year amortization: you make payments as if the loan pays off over 25 years, but at year 10 you owe the remaining ~80% of the original balance in a lump sum. You must then refinance or sell. Planning for the balloon: (1) model the refinance at a higher rate to stress-test cash flow; (2) build reserves to handle any gap; (3) consider a longer fixed term (CMBS or life company) if rate certainty matters more than flexibility; (4) negotiate extension options at origination.

Question 5

What is the difference between recourse and non-recourse commercial loans?

Accepted Answer

A recourse loan: if the property is foreclosed and the sale doesn't cover the full loan balance, the lender can pursue you personally for the deficiency — using your other assets. Most bank, SBA, and conventional commercial loans are full recourse. A non-recourse loan limits the lender's recovery to the property itself — the borrower is not personally liable for any deficiency. CMBS and life company loans are typically non-recourse. However, virtually all non-recourse loans include 'bad boy carve-outs' — events (fraud, misrepresentation, environmental mishandling, voluntary bankruptcy) that convert the loan to full recourse. For large commercial deals, non-recourse is significant protection.

Question 6

What are commercial loan prepayment penalties?

Accepted Answer

Commercial prepayment penalties are complex and expensive compared to residential. Three common structures: (1) Step-down: a percentage of outstanding balance that decreases over time (e.g., 5/4/3/2/1%). Common on bank and bridge loans. Most flexible. (2) Yield maintenance: pays the lender the present value of future interest it would have earned. Expensive when rates drop. Common on CMBS and life company loans. (3) Defeasance: replace the loan collateral with U.S. Treasury securities that replicate the cash flow. Very expensive but technically not a prepayment — you can sell the property and keep the loan. Common on CMBS loans. Always model the prepayment cost at your expected exit date before committing to a loan structure.

Question 7

What is a commercial bridge loan and when does it make sense?

Accepted Answer

A commercial bridge loan is short-term financing (6–36 months) used to acquire or reposition a property that doesn't yet qualify for permanent financing — because it has vacancy, needs renovation, or is otherwise in a transitional state. The bridge lender advances funds based on the as-is and as-stabilized value, with draws tied to renovation milestones. The exit is either a refinance into permanent debt (once stabilized) or a sale. Bridge loans carry higher rates (8–12%+ current market) and origination fees (1–3%), but they're the essential tool for value-add investing. The math: can you force enough NOI growth during the bridge period to refinance into permanent debt at terms that produce acceptable cash-on-cash returns?

Question 8

What is SBA 7(a) vs. SBA 504 — which do I use?

Accepted Answer

SBA 7(a): more flexible — can finance real estate, equipment, working capital, and business acquisition in a single loan. Up to $5M. Variable or fixed rate. 10% down typical. One lender handles it. Best for smaller deals or when you need working capital alongside real estate. SBA 504: strictly for real estate and major equipment. Structured as two loans — a conventional first from the bank (50% of project cost) and a fixed-rate SBA debenture (40%) with as little as 10% down. Up to $5.5M from the SBA ($14M+ project). Best for larger owner-occupied commercial acquisitions where the long-term fixed rate and low down payment are priorities. 504 is slower (90–120 days) but the below-market SBA rate is typically worth it on deals above $1M.

Question 9

What documents does a commercial lender require?

Accepted Answer

Commercial loan applications require substantially more documentation than residential. Property documents: last 2–3 years of operating statements, current rent roll (with lease terms, expiration dates, and tenant names), trailing 12-month income/expense summary, current leases, and recent property tax bills. Borrower/sponsor documents: 3 years of personal and business tax returns, personal financial statement (assets, liabilities, net worth), credit authorization, organizational documents (LLC/corp), and resume/bio if it's a complex deal. Third-party reports: appraisal (ordered by lender), Phase I environmental report, survey, property condition assessment, and title search. For construction: plans, permits, construction contract, and contractor credentials.

Question 10

What is a Phase I Environmental Assessment and when is it required?

Accepted Answer

A Phase I Environmental Site Assessment (ESA) is a review of a commercial property's history for potential contamination — prior use as a gas station, dry cleaner, auto shop, or industrial site. Most commercial lenders require a Phase I for any commercial acquisition. The Phase I involves a site visit, records review, and interviews — it costs $1,500–$4,000 and takes 2–3 weeks. If the Phase I identifies recognized environmental conditions (RECs), a Phase II is triggered — actual soil and groundwater sampling, costing $5,000–$30,000+. Properties with confirmed contamination face remediation costs that can exceed their value. Always factor environmental risk into your due diligence timeline and budget.

Question 11

How does cap rate affect my loan amount?

Accepted Answer

Your loan is sized based on the lesser of LTV (loan amount vs. appraised value) and DSCR (loan amount vs. NOI). The appraiser determines value by dividing NOI by a market cap rate. If you're paying a 4.5% cap rate in a market where lenders use 5.5% for underwriting, the property appraises below your purchase price — and your loan is reduced accordingly. Example: You're buying a property at $2M with $90,000 NOI (4.5% cap). The appraiser applies a 5.5% cap rate: value = $90,000 ÷ 0.055 = $1,636,364. At 75% LTV, max loan = $1,227,273 — not $1,500,000. The gap between your purchase price and the appraised LTV becomes additional required equity.

Question 12

What is a personal guarantee and can I avoid it?

Accepted Answer

A personal guarantee is a legal commitment that you will personally repay the loan if the property fails to generate sufficient income or is foreclosed. It exposes your personal assets — home, savings, other investments — to the lender's claims. Avoiding personal guarantees: (1) CMBS loans are non-recourse (with bad-boy carve-outs) once the loan is large enough and the property is stabilized. (2) Life company loans are typically non-recourse. (3) Some larger portfolio lenders will accept a limited guarantee (capped at a percentage of the loan or limited to specific events) for experienced sponsors with strong track records. For most buyers' first commercial deal, a full personal guarantee is unavoidable.

Question 13

What is mezzanine debt?

Accepted Answer

Mezzanine debt is subordinate financing that sits between the senior mortgage and equity in the capital stack. It fills the gap when senior debt doesn't cover the full acquisition cost. Example: senior lender provides 65% LTV, you have 20% equity — the remaining 15% is funded by a mezzanine lender at a higher rate (10–15%+). Mezzanine is secured by a pledge of the ownership interest in the property (not the property itself), which means a mezzanine lender can foreclose on the LLC that owns the property rather than going through a lengthy real estate foreclosure. Mezzanine is common on larger institutional deals ($5M+); for smaller deals, preferred equity or a seller-held second mortgage serves a similar function.

Question 14

How does a commercial construction loan work?

Accepted Answer

A commercial construction loan funds a ground-up development or major renovation. Key structure: (1) The lender advances funds in draws tied to construction milestones — you don't get all the money at once. (2) During construction you pay interest only on drawn funds. (3) At completion, the construction loan converts to a permanent loan (one-time close) or you refinance into permanent financing (two-close). Sizing is based on LTC (loan-to-cost) — typically 65–75% of total project cost including land, hard costs, soft costs, and interest reserves. The lender will order an as-built appraisal at commencement to confirm the completed value supports the permanent financing assumptions. Lender approval of the general contractor and regular construction inspections are standard requirements.

Question 15

What is a DSCR loan for residential investment properties?

Accepted Answer

A residential DSCR loan (1–4 units) qualifies based solely on the rental income of the property — no personal income, no tax returns, no employment verification. The ratio: gross monthly rent ÷ total monthly payment (principal, interest, taxes, insurance, HOA) = DSCR. Most lenders require 1.0–1.25. Strong programs exist at 0.75–1.0 DSCR with higher rates and fees. DSCR loans are ideal for investors with complex income, large rental portfolios that push DTI too high for conventional loans, or retirees who want to keep acquisitions off their personal tax picture. Rates are typically 0.5–1.25% above conventional investment property rates.

Question 16

How is a multifamily (5+ units) loan different from a 1–4 unit investment loan?

Accepted Answer

The threshold is 5 units. Properties with 1–4 units finance under residential guidelines (Fannie, Freddie, FHA) where personal income and credit drive underwriting. Properties with 5+ units are commercial — the rent roll, NOI, and property condition drive underwriting, not the borrower's W-2. This matters for leverage: residential investment properties top out at 75–80% LTV; commercial multifamily can reach 80–85% LTV with agency programs (Fannie/Freddie multifamily). The commercial programs also offer better amortization (30-year) and are assumable, which adds exit flexibility.

Question 17

What is the commercial loan process timeline?

Accepted Answer

Bank conventional: 30–60 days. Requires: application → term sheet → appraisal order → property inspection → underwriting → commitment → closing. SBA 7(a): 45–90 days. Longer due to SBA review process. SBA 504: 90–120 days. Two separate loans close simultaneously. CMBS: 45–75 days. Standardized process but servicer setup takes time. Life company: 60–90 days. Slower due to internal approval layers. Bridge/hard money: 10–21 days. Fastest in the market — used when timing is critical. The bottleneck is almost always the appraisal (2–4 weeks) and environmental report (2–3 weeks), which can be ordered simultaneously. Experienced deal teams running these tracks in parallel can consistently close bank deals in 30–35 days.

Question 18

Can a foreign national get a commercial mortgage in Florida?

Accepted Answer

Yes. Foreign national commercial mortgage financing is available in Florida for investors without a U.S. Social Security number, credit history, or tax returns. Programs typically require: 35–40% down payment, a U.S. bank account, ITIN (Individual Taxpayer Identification Number) or passport, and a property that generates sufficient income to support the loan (DSCR ≥ 1.25). Rates are typically 1–2% above comparable domestic programs. The Central Florida market — especially short-term rental investment and multifamily — sees significant foreign national investment from Canada, Brazil, the UK, and Argentina. Portfolio and private lenders are the most active in this space.

Question 19

What is a 1031 exchange and how does it interact with a commercial mortgage?

Accepted Answer

A 1031 exchange allows an investor to defer capital gains taxes on the sale of investment property by reinvesting the proceeds into 'like-kind' property within specific time limits (45 days to identify replacement property, 180 days to close). From a financing perspective: the equity from the relinquished property becomes your down payment on the replacement. If the replacement property is more expensive, you need a new commercial mortgage for the difference. Timing is critical — your 1031 exchange deadlines don't care about your lender's underwriting timeline. Start the loan process on potential replacement properties before or immediately upon identifying them to avoid losing the exchange. Ryan coordinates the financing and acquisition timing to protect the exchange.

Question 20

How do I calculate NOI and why does it matter?

Accepted Answer

NOI = Gross Potential Rent + Other Income − Vacancy & Credit Loss − Operating Expenses. Operating expenses include: property taxes, insurance, utilities (if owner-paid), maintenance and repairs, management fees (typically 5–10% of rents, even if self-managed — lenders normalize this), administrative costs, landscaping, and reserves for replacement. What's NOT included in operating expenses: mortgage payments, depreciation, income taxes, or capital expenditures. NOI is the number every lender starts from to calculate DSCR and value the property. Inflating NOI by omitting management fees or understating maintenance reserves is a common underwriting error — lenders normalize for these in their own analysis.

Question 21

What is debt yield and why do CMBS lenders care about it?

Accepted Answer

Debt yield = NOI ÷ Loan Amount. Unlike DSCR, debt yield is not affected by the interest rate — it measures the lender's raw return on capital regardless of how interest rates move. Example: $100,000 NOI on a $1,000,000 loan = 10% debt yield. CMBS lenders often require minimum debt yields of 8–10% because they're underwriting for a world where interest rates may rise substantially above the current loan rate. If a lender originates at 6% but rates rise to 9% at refinance, the debt yield tells them whether the property can support the new debt. Debt yield is also the metric that constrains loan amounts in low-cap-rate markets where DSCR alone would allow excessive leverage.

Question 22

What is a value-add commercial deal and how is it financed?

Accepted Answer

A value-add property is one with below-market rents, high vacancy, deferred maintenance, or below-optimal management — where there is a clear path to increasing NOI through improvements or repositioning. Typical financing: a bridge loan (6–36 months) covers the acquisition and renovation. The bridge lender advances based on as-stabilized value (what the property will be worth after the value-add plan is executed) — giving you credit for future income rather than just current NOI. After stabilization, you refinance into permanent debt (CMBS, bank, agency) at terms based on the new, higher NOI. The value-add thesis only works if: (1) the as-stabilized NOI supports permanent financing at a favorable rate, and (2) the renovation cost and timeline are accurately modeled.

Question 23

What commercial property types are strongest in the Orlando market right now?

Accepted Answer

As of mid-2026, the strongest-performing commercial asset classes in Central Florida are: Industrial/logistics — driven by e-commerce, last-mile distribution, and population growth. Vacancy sub-3% in many I-4 corridor submarkets. Medical office — population growth and healthcare demand has kept this sector tight while traditional office has struggled. Multifamily — Orlando is one of the fastest-growing MSAs in the country; rent growth has moderated from the 2021–2022 peak but fundamentals remain healthy. Self-storage — consistently recession-resistant; Lake, Osceola, and Polk Counties are undersupplied. Short-term rental — Orlando is the #1 STR market in the U.S. by demand; Kissimmee/Osceola County is the primary concentration. Weaker: traditional office (remote work impact), regional retail (anchor vacancy). Stronger submarkets: Lake Nona (medical city), I-4 corridor (industrial), International Drive area (hospitality/STR).

Property Type	Min. Down	Min. DSCR	Typical Term	Notes
Multifamily (5+ Units)	20–25%	1.20–1.25	5–10 yr / 30 yr am.	Best-financed commercial asset class. Fannie DUS, Freddie Optigo, CMBS, life company, and HUD all active. Cap rates 5–6.5% in Orlando.
Office / Medical Office	25–35%	1.25–1.30	5–10 yr / 20–25 yr am.	Post-COVID vacancy scrutiny. Medical office outperforms general office significantly. Owner-occupied eligible for SBA.
Retail / Strip Center	25–30%	1.25–1.35	5–10 yr / 20–25 yr am.	Tenant credit quality and lease term remaining are critical. Shadow-anchored centers favored over unanchored. National tenants = better terms.
Industrial / Warehouse	20–25%	1.20–1.25	5–10 yr / 25 yr am.	Strongest CRE sector. Low cap rates (5–6%). Clear height, dock doors, truck court depth matter to both underwriting and appraisal.
Mixed-Use	25–30%	1.25–1.30	5–10 yr / 25 yr am.	Residential-over-retail may qualify for FNMA if residential portion is dominant. Commercial exposure above 25% triggers commercial underwriting.
Short-Term Rental / Hospitality	30–35%	1.30–1.50	5–7 yr / 20–25 yr am.	Income volatility means higher DSCR requirements. STR-specific portfolio lenders use trailing 12-month rental history. AirDNA data accepted.
Self-Storage	25–30%	1.25–1.30	5–10 yr / 25 yr am.	Recession-resistant asset class. CMBS and portfolio lenders active. Occupancy history and competitive supply analysis are key.
Special Use (Gas Station, Car Wash, etc.)	30–40%	1.30–1.40	5–7 yr / 20–25 yr am.	Limited secondary market. Environmental liability risk. SBA 7(a) is often the most accessible path. Environmental Phase I required; Phase II likely.

Commercial mortgage loans in Orlando.

The property earns the loan. You guarantee it.

What lenders evaluate

Commercial loan programs compared.

Conventional Commercial

CMBS (Conduit)

SBA 7(a)

SBA 504

Life Company Loans

Debt Fund / Bridge

HUD / FHA Multifamily

Financing parameters by property type.

Commercial underwriting metrics.

DSCR in practice — a deal that doesn't pencil.

Property Income & Expenses

Debt Service & DSCR

Commercial loan timeline.

Commercial loan document checklist

Property Documents

Borrower / Sponsor Documents

Lender-Ordered (Borrower Pays)

SBA 7(a) vs. SBA 504 — which one?

Orlando commercial real estate by sector.

Industrial / Logistics

Multifamily (5+ Units)

Medical Office

Short-Term Rental

Self-Storage

Traditional Office

22 commercial mortgage questions, answered.