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Commercial mortgage loans cover a huge range of situations, from a small contractor buying the warehouse they have rented for a decade to a syndication picking up a 40-unit apartment building. The product names are similar, but the underwriting, pricing, and structure are wildly different depending on whether you plan to operate out of the building or rent it to tenants. Picking the wrong lane is the single most expensive mistake we see borrowers make on commercial real estate loans.
This guide breaks down how commercial mortgages actually work in the current market. We will cover owner-occupied versus investment property structures, how lenders size deals with DSCR and LTV, and when a cash-out refinance on existing CRE can unlock operating capital you did not know you had.
Owner-occupied real estate: why SBA 504 usually wins
If you operate your business out of the property and occupy at least 51% of the square footage, SBA 504 is almost always the right answer over a conventional commercial mortgage. The structure is unusual, and that is exactly what makes it cheap. A 504 deal is split three ways: a bank or non-bank lender funds 50% of the project on a first lien, a Certified Development Company (CDC) funds 40% through an SBA-backed debenture on a second lien, and the owner brings 10% equity. Compare that to a conventional commercial mortgage where you typically need 20-30% down.
On rate, the difference is meaningful. The CDC debenture portion is currently in the mid-6% range, locked for 25 years on a fully amortizing basis. The bank piece is usually 5-7 year fixed at 7-8%, then floats or refinances. Blend those together with the equity layer and the all-in effective rate currently runs 6.5-7.5%. A conventional owner-occupied commercial mortgage today is closer to 7-9%, with a 5-10 year balloon and 20-25 year amortization, meaning you face refinance risk every cycle. Our SBA 504 page walks through exactly how the three-piece stack closes and what the eligibility looks like.
The trade-off is speed. SBA 504 closings run 60-90 days because two lenders and the CDC all underwrite in parallel. Conventional CRE mortgages typically close in 3-6 weeks. If you are under contract with a tight closing deadline, a bridge loan can fund the purchase in 2-3 weeks, with the 504 refinancing it on the back end. We do this routinely for buyers who win competitive bids and need certainty of close. For a deeper look at how bridge financing fits into a permanent capital plan, see our strategic guide to bridge loans.
One more practical note on owner-occupied: if you are already in your building and the SBA 7(a) limit of $5M will not stretch to cover both real estate and working capital, 504 frees up your 7(a) eligibility for the operating side. Our breakdown of how to qualify for an SBA 7(a) loan covers when each program fits.
Investment property: DSCR, LTV, and how lenders size the loan
Investment property mortgages (multifamily, retail centers, office, mixed-use, industrial) are priced on the cash flow of the asset, not your personal income. The two numbers that drive everything are debt service coverage ratio (DSCR) and loan-to-value (LTV). Understand these and you understand commercial mortgage underwriting.
DSCR is net operating income divided by annual debt service. NOI is your rental income minus all operating expenses (property taxes, insurance, property management, repairs, reserves for capital expenditures, vacancy allowance) but explicitly not your mortgage payment. Debt service is the annual principal and interest on the loan. A property with $500K NOI and a loan that costs $400K a year in debt service has a DSCR of 1.25. Most commercial mortgage lenders want a minimum DSCR of 1.20-1.30, which means the property generates 20-30% more cash than the loan costs to service. The higher the DSCR, the more attractive the deal and the better the rate.
LTV is the loan amount divided by the appraised value. A $5M property at 70% LTV gets a $3.5M loan, with the borrower bringing $1.5M down. Investment property LTV typically caps at 65-75% depending on asset class and market. Multifamily in strong markets can hit 75-80% with agency debt; office in a secondary market might cap at 60-65% today. Rates on stabilized investment property commercial mortgages currently run 7-10% depending on size, sponsor, and asset.
For larger deals (typically $2M and up), non-recourse becomes available. Non-recourse means the lender's only collateral is the property itself, with standard carve-outs for fraud and bankruptcy. This is a meaningful protection for the sponsor and a big reason institutional CRE flows toward agency and CMBS lenders at that size. For a broader view of how rates get set across loan products, our business loan rates guide covers the underwriting drivers in more depth.
Two practical points on investment property. First, lenders will haircut your stated rents to market if your rent roll looks aggressive. If you are buying a property where tenants are paying above-market rent, the lender will underwrite to market, which can shrink your loan amount by 10-15%. Second, reserves matter. Lenders want 6-12 months of debt service in reserves at closing on most deals. Build that into your equity check, not your closing costs.
Cash-out refinancing to fund business operations
One of the most underused moves in commercial finance is the cash-out refinance. If you own commercial real estate that has appreciated or where you have paid down the loan, a cash-out refi pulls that equity out as working capital without selling the asset. We see owners use this for expansion, equipment purchases, debt consolidation, partner buyouts, and bridging slow seasons.
The math is straightforward. Say you own a $4M property with $2M remaining on the existing mortgage. A 70% LTV cash-out refi gives you a new $2.8M loan. After paying off the existing $2M balance and closing costs, you walk away with roughly $750-800K in usable cash. That cash hits your operating account and can fund anything: a second location, a new production line, paying down a high-rate merchant cash advance, or buying out a partner who wants liquidity.
The constraint to know up front: SBA 504 does not allow cash-out. The program is purpose-built for acquisition and improvement of owner-occupied real estate. If you want cash-out on a 504-financed property, you are looking at a conventional refinance or a bridge product. Conventional cash-out refis on commercial real estate currently price at 7-9% with 20-25 year amortization. Bridge loans on cash-out fit when the property is in a value-add posture or when the borrower needs to close fast and refinance into permanent debt within 12-24 months.
Where cash-out makes the most sense: when the alternative is an expensive short-term product. A business owner paying 40% APR effective on an MCA stack while sitting on $1M of unencumbered real estate equity is leaving real money on the table. A cash-out refi at 8% over 20 years is a fraction of the cost. For a comparison of how short-term and long-term debt should fit together in your capital stack, see our piece on the cheapest business loan in 2026.
One caution: cash-out adds debt service to the property. Run the post-refi DSCR before you sign anything. If pulling $800K out drops your DSCR below 1.20, the lender will not approve the deal at the LTV you want, and you may need to take less cash out or accept a smaller loan.
How TurboFunding Helps
TurboFunding sources commercial mortgage loans across the full spectrum: SBA 504 for owner-occupied purchases, conventional commercial mortgages for investment property and refinances, bridge loans for time-sensitive closings, and the working capital products that often pair with a CRE transaction. We fund from $10K to $5M with 550+ FICO accepted on revenue-based products, 6+ months in business, and same-day funding available for working capital. Our 3-minute application uses a soft credit pull, so checking your rate has no impact on your score. If you are buying a building, refinancing existing CRE, or pulling cash out to fund operations, we can size the right structure for your specific situation. Find out More.
Frequently Asked Questions
Q. What is the minimum down payment on a commercial mortgage?
A. For owner-occupied SBA 504, 10% down is the standard minimum, with 15% for special-purpose properties (hotels, gas stations, self-storage) and 20% for startups with both characteristics. Conventional owner-occupied commercial mortgages typically require 20-30% down. Investment property mortgages usually require 25-35% down depending on asset class and DSCR.
Q. Can I use a commercial mortgage to buy a building I will partly rent out?
A. Yes, with structure. If you occupy 51% or more of the building with your own business, SBA 504 and 7(a) treat it as owner-occupied and you can rent the remaining space to third parties. Below 51% owner occupancy, the property is treated as investment real estate and priced accordingly.
Q. How long should I lock my rate on a commercial mortgage?
A. SBA 504 debentures are fixed for 25 years at closing, so no decision needed on the CDC piece. The bank first-lien portion is typically fixed for 5-10 years, with longer fixed periods costing slightly more in rate. On conventional investment property mortgages, 5 and 7 year fixed terms are most common. In the current rate environment, most sponsors are taking shorter fixed periods to retain refinance optionality.
Q. Will a commercial mortgage show up on my personal credit?
A. Smaller commercial mortgages with personal guarantees can report to personal credit, especially on community bank deals. Larger non-recourse loans typically do not. Either way, the lender will pull personal credit during underwriting. For more on how to position your file, see our documentation checklist.
Q. Can I refinance my existing CRE loan into an SBA 504?
A. Yes, in many cases. SBA 504 refinance is available for owner-occupied properties under specific conditions, including that the existing loan is at least 6 months seasoned and the property still meets the 51% occupancy test. It is one of the most under-used provisions in the program.
Commercial mortgage loans reward borrowers who match the product to the use case. Owner-occupied buyers should default to SBA 504 unless speed forces a different path. Investment buyers should know their DSCR and LTV cold before talking to a lender. And existing CRE owners should take a hard look at whether trapped equity could be funding the next growth move instead of sitting on a balance sheet. If you are evaluating a purchase, refinance, or cash-out on commercial real estate, we can help you size the right structure. Apply in 3 minutes with a soft credit pull. Find out More.