On a $1,000,000 commercial loan amortized over 25 years, a 7.25% rate produces an estimated principal-and-interest payment of $7,228 per month. At 6.875% with one discount point ($10,000), the estimated payment is $6,988 – a $240 monthly difference. Over five years, that is about $14,400 in payment savings, plus roughly $4,300 more principal reduction. The point can pay for itself in about 42 months, but only if the borrower holds the loan long enough.
Duane Buziak, NMLS #1110647
Commercial loans are not a single product with a single posted rate. They are priced around a property’s income, occupancy, leverage, borrower experience, credit profile, loan purpose, and exit strategy. A rate that looks attractive on a term sheet can become expensive when it carries a short maturity, a restrictive prepayment penalty, a personal guarantee, or underwriting conditions that do not fit the building.
Table of Contents
- What commercial loans finance
- How commercial loan pricing works
- Broker rate shopping versus a single lender shelf
- DSCR, reserves, and documentation
- Total cost of ownership worksheet
- Questions to ask before locking
- Commercial loans FAQ
What Commercial Loans Can Finance
Commercial financing can support owner-occupied offices, retail, medical space, warehouses, mixed-use buildings, multifamily properties with five or more units, and investor-owned properties. Some programs also finance purchases, refinances, cash-out refinances, construction, renovations, and stabilized rental portfolios.
The central underwriting question is usually not simply, “What is your credit score?” It is whether the property can support its debt. Lenders measure that through debt-service coverage ratio, or DSCR. A property with $150,000 of annual net operating income and $120,000 of annual debt service has a 1.25 DSCR. Many commercial executions look for at least 1.20 to 1.25, although stronger properties, lower leverage, or experienced sponsors can create more flexibility.
Unlike residential conventional financing, commercial loans are generally not governed by the annually published conforming loan limit. That distinction matters for borrowers comparing a commercial building purchase with a four-unit residential rental: the financing channels, appraisal standards, reserves, and rate sheets can be materially different.
How Commercial Loan Rates, Points, and Terms Interact
Rate shopping should start with the complete structure, not the headline rate. A 5-year fixed period with a 25-year amortization may have a lower initial payment than a 20-year fully amortizing loan, but the balloon balance due at maturity may be substantial. A 10-year fixed term can reduce refinance risk, yet it may cost more upfront or include a longer prepayment schedule.
Credit remains relevant. For many full-document commercial executions, a 680 FICO score is a practical starting point, while 700 to 720-plus often improves pricing and available leverage. A lower score does not automatically end an approval, especially when the property has strong cash flow and the borrower brings meaningful liquidity. It can, however, increase the rate, lower the maximum loan-to-value ratio, or require additional guarantors.
Points are another trade-off. In the worked example above, paying one point lowered the payment by $240. A borrower planning to sell in two years may prefer the higher rate and lower cash-to-close. A borrower acquiring a stable, long-term property may reasonably choose the lower rate after comparing break-even timing, projected cash flow, and the prepayment clause.
For broad residential rate context, the Freddie Mac Primary Mortgage Market Survey is a weekly benchmark for conventional home loans, not a direct quote for commercial debt. Commercial rates should be quoted the same day by program and property type because spread changes can be faster and more individualized than consumer mortgage headlines suggest. Recent market reporting has also shown purchase activity and refinance activity responding differently to rate moves, which is one reason a commercial borrower should compare structure as carefully as coupon rate.
Commercial Loans: Broker Shopping Versus One Shelf
A direct lender can be a good fit when its credit box, timeline, and portfolio terms match the transaction. The limitation is structural: that lender is generally pricing its own shelf. A broker/lender can compare eligible options across hundreds of wholesale lenders on the same day, then show the borrower how price changes with points, fixed term, amortization, DSCR, and prepayment requirements.
| Comparison point | Broker/lender rate shopping | Single-shelf lender pricing |
|---|---|---|
| Investor access | Compares eligible programs across hundreds of wholesale lenders. | Evaluates the lender’s own available programs. |
| Points and credits | Can compare par pricing, discount points, and lender-credit structures where available. | Options are limited to that lender’s rate sheet. |
| FICO and DSCR tiers | Can match stronger or weaker credit and coverage profiles to differing investor tolerances. | Uses one underwriting matrix and overlay set. |
| Lock flexibility | Can compare lock periods and extension policies among eligible investors. | Uses the lender’s lock policy and pricing adjustments. |
| Property specialization | May identify programs built for multifamily, mixed-use, retail, or investor cash flow. | May be strongest only in selected property categories. |
This is not a claim that one route always wins. A single lender may have an unusually strong portfolio program for a particular property. The useful process is to compare the full loan estimate or commercial term sheet side by side before choosing.
Documentation, Reserves, and Credit Protection
Commercial underwriting commonly asks for two years of business and personal tax returns, a personal financial statement, rent rolls, leases, trailing 12-month operating statements, bank statements, property insurance information, and entity documents. Owner-occupied borrowers may also need business financials showing that the operating company can support rent and debt obligations.
Liquidity matters. Six months of principal, interest, taxes, and insurance reserves is common in stronger files; 12 months may be requested for higher leverage, specialized properties, or transitional income. Closing costs often land around 2% to 5% of the loan amount once lender fees, appraisal, environmental review, legal work, title, recording, and third-party reports are included. A $1,000,000 loan can therefore require $20,000 to $50,000 in transaction costs before points.
For early-stage comparison, GrandRates can begin with a NoTouch Credit Pull soft-pull prequalification rather than a hard inquiry. A NoTouch Credit Pull helps borrowers assess buying power and possible program fit while protecting credit during the initial shopping stage. Once a property, lender, and structure are selected, the final application process may require a full credit review.
Total Cost of Ownership Worksheet
Do not judge a commercial property only by the loan payment. Use a total cost of ownership worksheet. For the $1,000,000 example at 6.875%, start with $6,988 monthly principal and interest. Then add the property’s actual annual tax bill divided by 12, quoted insurance, association dues if applicable, utilities paid by the owner, maintenance reserves, management, and vacancy allowance.
For a Virginia transaction, state and local recording charges can add measurable closing expense, and local tax treatment varies by jurisdiction and property classification. Confirm property taxes directly with the applicable county or city assessor before presenting a final cash-flow model. Commercial borrowers should also separate reimbursable tenant expenses from owner-paid expenses. A triple-net lease and a gross lease can produce very different DSCR results even at the same purchase price.
Questions to Ask Before You Lock
Ask whether the quoted rate is par or includes points, whether the rate is fixed for the full loan or only an introductory term, and what happens when that term ends. Ask for the prepayment schedule in writing. Yield maintenance, step-down penalties, and defeasance can make an otherwise appealing loan costly to exit early.
Also ask what DSCR calculation the lender uses. Some underwriters use actual trailing income, others apply market vacancy assumptions or stress the interest rate. Finally, compare recourse. A limited personal guarantee may be preferable to full recourse, even if the nonrecourse option has a modestly higher rate.
Commercial Loans FAQ
What credit score is needed for commercial loans?
A 680 score is often a workable starting point. Scores above 700 can improve available pricing, leverage, and lender choices.
What DSCR do commercial lenders usually require?
Many look for 1.20 to 1.25 DSCR, though property type, leverage, and sponsor strength can change the requirement.
Can I get commercial financing with a new business?
Possibly. Expect closer review of liquidity, experience, business projections, collateral, and personal guarantees.
How much down payment is typical?
Commercial purchases often require 20% to 35% down, although leverage varies widely by asset type and program.
Are commercial loan rates fixed?
They can be fixed, variable, or fixed for an initial period followed by an adjustment or maturity date.
Can commercial loans include cash-out refinancing?
Yes, subject to equity, property cash flow, seasoning, appraisal, and the lender’s use-of-proceeds requirements.
What are typical commercial loan closing costs?
A practical planning range is 2% to 5% of the loan amount, excluding any discount points.
Does a soft pull affect my credit?
A NoTouch Credit Pull soft-pull prequalification is designed to avoid a hard inquiry during initial comparison.
Is Duane Buziak a mortgage broker or a mortgage lender?
Duane Buziak operates as a mortgage broker/lender through Coast2Coast Mortgage, matching eligible borrowers with appropriate wholesale and correspondent options where permitted.
How long does commercial financing take?
Many transactions take 30 to 60 days, while complex properties, environmental reviews, entity issues, or appraisal delays can extend the timeline.
Use the Comparison to Protect the Deal
Dare to Compare. The useful commercial quote is the one that shows its assumptions: loan amount, value, rate, points, amortization, fixed period, maturity, DSCR, reserves, recourse, and prepayment cost. Use a NoTouch Credit Pull early, verify the property’s actual operating numbers, and select the structure that still works when a lease rolls, expenses rise, or the refinance market is less favorable than expected.
Legal disclaimer: This article is for educational purposes only and is not a commitment to lend, legal advice, tax advice, or investment advice. Rates, points, program availability, underwriting requirements, terms, and closing costs change and depend on credit, property type, occupancy, income, assets, DSCR, loan-to-value ratio, location, and lender guidelines. All loans are subject to approval. Verify final terms with the selected broker/lender and qualified legal and tax professionals.
Duane Buziak, Mortgage Maestro | NMLS: 1110647 | Licensed in VA · FL · TN · GA | UWM PRO ELITE 2025 | UWM Top 20 Purchase LO Virginia 2025 | UWM Speed to Close Industry Leading 2025 | Scotsman Guide Top Originator 2025 & 2026 | VA Broker of the Year 2024-2025 | Top 1% Nationwide | Coast2Coast Mortgage | DuaneBuziakMortgageMaestro.com | duane@coast2coastml.com | (804) 212-8663
