Commercial real estate loans are used to purchase income-producing properties such as an apartment complex or an office building. In general, the commercial real estate loan requirements are good credit, proof of profitability for 2 out of the last 3 years of business, a down payment (typically 10%), and a Debt Service Coverage Ratio (DSCR) of 1.25 or higher. DSCR is a measure of the cash flow available to pay current debt obligations. Your DSCR can be calculated by dividing your Net Operating Income by your Debt Services. You may use the commercial real estate itself as collateral for the loan, however, some lenders may also require you to assign your rents or leases as additional collateral.

What do lenders look for?

Lenders may require bank statements, personal tax returns, business tax returns, business registration documents, and proof of profitability for 2 out of the last 3 years of business. They may also request a UCC-1 (Uniform Commercial Code-1) financial statement, which is a legal form a creditor files to give notice that it has an interest in the personal property of a debtor.

Best practice tips:

• Be sure to have proof of profitability for at least 2 years.

• Determine the loan-to-value ratio (LTV) — some lenders will not exceed 80%.

• Check your monthly payments with our Business Loan calculator.