Commercial property loans (also called commercial real estate loans or CRE loans) are financing products for income-producing properties like office buildings, retail centers, industrial warehouses, and apartment complexes.

Unlike residential mortgages that focus on personal income, commercial loans qualify based on the property's ability to generate revenue and cover debt payments. **Key 2025 Qualification Requirements:** (1) **Debt Service Coverage Ratio (DSCR)**: Most lenders require DSCR of 1.20-1.35+, meaning property net operating income (NOI) must exceed annual loan payments by 20-35%.

Example: $150,000 NOI requires loan payments under $125,000/year (1.20 DSCR). (2) **Loan-to-Value (LTV) Ratio**: Typically 65-80% LTV, requiring 20-35% down payment.

Higher-risk properties (hotels, special-use) may require 35-40% down. (3) **Credit Score**: Minimum 660-680 for most lenders, 700+ for best rates.

Scores 740+ can qualify for additional 0.25-0.50% rate discount. (4) **Business Financial Strength**: 2+ years of profitable operation, sufficient liquid reserves (6-12 months of payments), personal net worth 1.0-1.25x loan amount. (5) **Property Condition**: Professional appraisal showing market value supports loan amount, environmental Phase I assessment showing no contamination, property inspection confirming no major deferred maintenance. (6) **Documentation**: 3 years business tax returns, 2 years personal tax returns, rent roll showing tenant leases and income, operating statements (trailing 12-month P&L), balance sheet showing assets/liabilities. **2025 Interest Rate Environment**: Commercial loan rates range 6.25-9.50% depending on property type, borrower strength, and loan structure.

Office and retail face higher rates (7.50-9.50%) due to market uncertainty, while industrial and multifamily enjoy lower rates (6.25-7.75%) due to strong fundamentals.

Fixed-rate terms typically 5-10 years with 20-25 year amortization, creating balloon payment at term end requiring refinancing.

SBA 504 loans offer 25-year fixed rates at 6.50-7.25% for owner-occupied properties, requiring only 10% down but capping loan at $5-5.5 million. **Loan Amounts and Terms**: Minimum loan typically $250,000-$500,000 (smaller deals use SBA or local banks), maximum loan $50-100+ million for institutional lenders.

Typical loan term structure: 5/25 (5-year fixed rate, 25-year amortization), 7/25, or 10/25.

Interest-only periods of 1-3 years available for stabilized properties or during lease-up phase, reducing initial cash flow burden. **Lender Types by Deal Size**: Local/regional banks: $500K-$10M deals, relationship-focused, flexible underwriting.

National banks: $5M-$50M deals, stricter underwriting, competitive rates.

CMBS lenders: $2M-$100M+ deals, property-quality focused, less flexible.

Life insurance companies: $10M-$500M deals, best rates, strictest requirements.

Understanding these requirements helps investors structure deals appropriately and identify suitable lenders before shopping for financing.

Commercial property loan calculations require understanding three key formulas: monthly payment calculation, maximum loan based on DSCR, and maximum loan based on LTV.

These calculations determine both affordability and lender approval limits. **Formula 1: Monthly Loan Payment Calculation** - Use standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n - 1], where M = monthly payment, P = principal (loan amount), r = monthly interest rate (annual rate ÷ 12), n = total payments (years × 12).

Example: $2,000,000 loan at 7.5% for 25 years: r = 0.075 ÷ 12 = 0.00625, n = 25 × 12 = 300, M = $2,000,000 × [0.00625(1.00625)^300] / [(1.00625)^300 - 1] = $14,757/month or $177,084/year.

For interest-only periods, simply calculate: Monthly payment = Loan amount × (annual rate ÷ 12).

Example: $2M at 7.5% = $2,000,000 × 0.00625 = $12,500/month interest-only. **Formula 2: Maximum Loan Based on DSCR (Income Method)** - Most commercial loans are limited by property income, not borrower income.

Calculate: Maximum annual debt service = Net Operating Income (NOI) ÷ Required DSCR, then Maximum loan amount = (Maximum annual debt service) × Loan constant factor.

Loan constant factor = 1 / [r(1+r)^n / ((1+r)^n - 1)] for annual payments.

Example: Property NOI = $180,000, lender requires 1.25 DSCR, loan terms 7.5% for 25 years.

Step 1: Max debt service = $180,000 ÷ 1.25 = $144,000/year.

Step 2: Calculate loan constant = 0.088542 (annual payment per $1 borrowed).

Step 3: Maximum loan = $144,000 ÷ 0.088542 = $1,626,344.

Simplified calculator method: Maximum loan ≈ (NOI ÷ DSCR) × 11.3 for 7.5% / 25-year loan (11.3 is inverse of loan constant).

Quick check: $180,000 ÷ 1.25 × 11.3 = $1,627,200 (matches detailed calculation). **Formula 3: Maximum Loan Based on LTV (Value Method)** - Commercial loans cannot exceed a percentage of property value.

Calculate: Maximum loan = Appraised value × Maximum LTV ratio.

Example: Property appraised at $2,500,000, lender allows 75% LTV: Maximum loan = $2,500,000 × 0.75 = $1,875,000.

Required down payment = $2,500,000 - $1,875,000 = $625,000 (25%). **The Binding Constraint** - Your actual maximum loan is the LOWER of the DSCR limit and LTV limit.

Using above examples: DSCR allows $1,626,344, LTV allows $1,875,000 → Maximum loan = $1,626,344 (DSCR is binding constraint).

This is common for high-cap-rate properties (7%+ cap rate) where income is strong relative to value.

Conversely, low-cap-rate properties (4-5% cap rate) in prime markets are typically LTV-constrained. **2025 Advanced Calculations**: (1) Adjustable-rate loans: Calculate payment using initial rate, then estimate payment at adjustment using projected rate caps.

Example: 5/25 loan starts at 7.0%, rate can increase 2% at year 6 → calculate payment at 9.0% to stress-test cash flow. (2) Loan with points: Effective interest rate = Stated rate + (Points ÷ Loan term).

Example: 7.0% with 2 points on 10-year term = 7.0% + (2% ÷ 10) = 7.20% effective rate. (3) Breakeven occupancy: Calculate what occupancy % is needed to meet DSCR.

If NOI = $180K requires 100% occupancy, and max debt service = $144K, breakeven = $144K ÷ (NOI per % occupancy).

Many lenders require proof that 85-90% occupancy still meets 1.0 DSCR. **Refinancing Calculations**: To calculate refinance eligibility, determine current property NOI, apply lender DSCR requirement to find max debt service, convert to max loan amount using current rates.

Example: Property bought in 2019 for $2M with $1.5M loan, now worth $2.8M with NOI grown to $220K.

At 1.25 DSCR and 7.5% rates: Max debt service = $220K ÷ 1.25 = $176K, Max loan = $176K ÷ 0.088542 = $1,987,748.

Cash-out refi potential = $1,987,748 - $1,200,000 remaining balance = $787,748 cash-out (before closing costs).

Alternatively, LTV limit = $2,800,000 × 0.75 = $2,100,000 max loan.

DSCR constrains to $1,987,748 in this case.

These calculations are essential for underwriting commercial deals and determining investor cash flow returns before making purchase offers or refinancing existing properties.