Commercial real estate financing in Maryland works differently from financing a typical residential property. Loan terms, down-payment requirements, underwriting standards and repayment structures can vary substantially depending on the property and borrower.

The appropriate financing structure also depends heavily on why you are buying the property.

A business purchasing a building for its own operations may have financing options that are not available to an investor purchasing a property primarily to generate rental income.

The First Question: Owner-Occupied or Investment Property?

One of the first distinctions lenders may make is whether the property will be occupied by the borrower’s operating business or primarily held as an investment.

Owner-Occupied Commercial Real Estate

Owner-occupied commercial real estate is purchased primarily to house the buyer’s own operating business.

Examples can include:

• A medical practice purchasing its office
• A contractor purchasing a warehouse
• A manufacturer purchasing an industrial facility
• A restaurant purchasing its building
• A professional firm purchasing office space

Qualifying small businesses may have access to SBA-backed financing in addition to conventional commercial loans.

Commercial Investment Property

An investment property is generally acquired primarily for income from tenants or investment return.

These transactions are typically evaluated based on factors such as:

• Net Operating Income
• Debt Service Coverage Ratio
• Tenant quality
• Lease terms
• Occupancy
• Property condition
• Loan-to-value ratio

SBA 504 financing cannot be used for speculation or investment in rental real estate.

Option 1: Conventional Commercial Real Estate Loan

A conventional commercial mortgage is generally made by a bank, credit union or other commercial lender without an SBA guaranty.

Loan structures vary considerably among lenders.

Depending on the transaction, underwriting may consider:

• Purchase price
• Appraised value
• Borrower equity
• Borrower creditworthiness
• Business financial performance
• Property cash flow
• Debt Service Coverage Ratio
• Property type
• Tenant strength
• Liquidity and reserves

Commercial Loan Term vs. Amortization

This distinction is particularly important for first-time commercial buyers.

The loan term tells you when the loan matures.

The amortization period determines the schedule over which payments are calculated.

Those periods do not necessarily have to be the same.

That remaining amount is commonly referred to as a balloon balance.

Fixed vs. Variable Commercial Interest Rates

Commercial loans may carry fixed or variable interest rates.

Fixed Rate

A fixed interest rate generally provides greater predictability during the fixed-rate period.

Variable Rate

A variable rate may change based on an identified benchmark or base rate plus a lender margin.

Borrowers should understand:

• Whether the rate is fixed or variable
• How often it can adjust
• The applicable benchmark
• Any adjustment caps
• Whether refinancing may be required at maturity

Option 2: SBA 504 Loan

The SBA 504 program provides long-term, fixed-rate financing for qualifying major fixed assets that promote business growth and job creation. SBA states that 504 financing is delivered through Certified Development Companies, or CDCs.

Qualifying uses can include the purchase or construction of:

• Existing buildings
• Land
• New facilities
• Qualifying long-term machinery and equipment

The program may also finance qualifying improvements or modernization of land and existing facilities.

SBA 504 Loan Maturities

Current SBA guidance lists 10-, 20- and 25-year maturity terms for 504 loans.

How Much Can an SBA 504 Loan Provide?

SBA currently states that the maximum 504 loan amount is generally $5.5 million, although the overall project financing structure can involve additional financing from other sources.

What SBA 504 Cannot Finance

According to current SBA guidance, 504 financing cannot generally be used for:

• Working capital
• Inventory
• Speculation
• Investment in rental real estate
• Certain debt that does not qualify under SBA rules

That makes 504 fundamentally different from a general-purpose business loan.

Option 3: SBA 7(a) Loan

The SBA 7(a) program is SBA’s primary business loan program and is broader in permitted uses than the 504 program.

Current SBA guidance states that 7(a) proceeds can be used for purposes including:

• Acquiring real estate and buildings
• Improving real estate
• Refinancing qualifying real estate
• Working capital
• Machinery and equipment
• Furniture and fixtures
• Changes of business ownership
• Multiple-purpose business financing

The current maximum 7(a) loan amount is $5 million.

Why 7(a) Can Be Useful in a Real Estate Transaction

The broader permitted uses can make 7(a) financing worth discussing when a business acquisition involves more than simply purchasing the real estate.

For example, a transaction may involve some combination of:

• Commercial property
• Business acquisition
• Equipment
• Fixtures
• Improvements
• Working capital

Eligibility and the amount allocated to each purpose must be evaluated by the participating lender under current SBA rules.

SBA 504 vs. SBA 7(a)

Program limits and eligibility can change. Confirm current requirements with an SBA-approved lender or CDC before structuring a transaction.

Important 2026 Change: Combining SBA 7(a) and 504 Financing

Effective July 4, 2026, SBA changed its policy regarding cumulative 7(a) and 504 financing.

Under the new policy, qualified borrowers who obtain a 7(a) loan first may potentially access up to $5 million through 7(a) and up to $5 million through 504 for a combined total of up to $10 million in SBA-backed financing, subject to program eligibility and individual loan limits.

Because SBA rules and lender underwriting can change, buyers considering this structure should verify the current requirements directly with participating SBA lenders and CDCs.

How Much Down Payment Is Required for Commercial Property?

There is no universal commercial real estate down-payment percentage.

Required borrower equity can depend on:

• Loan program
• Property type
• Owner occupancy
• Business history
• Borrower financial strength
• Loan-to-value ratio
• Property cash flow
• Project risk

Instead of assuming a particular percentage, ask the lender how much borrower equity will be required for the specific property and financing program.

What Is Loan-to-Value Ratio?

Loan-to-value, or LTV, compares the loan amount with the value used by the lender.

A lower LTV generally means the borrower is contributing more equity to the transaction.

What Is Debt Service Coverage Ratio?

Debt Service Coverage Ratio, commonly called DSCR, measures the relationship between income available for debt service and required debt payments.

Commercial lenders frequently use DSCR when evaluating income-producing properties and business cash flow.

A DSCR above 1.00 generally indicates that the measured income exceeds the corresponding debt service. The minimum ratio required for a particular loan depends on the lender and transaction.

The Importance of Net Operating Income

For an income-producing commercial property, NOI is a fundamental part of financing analysis.

A lender may review:

• Current rental income
• Vacancy
• Lease terms
• Operating expenses
• Expense reimbursements
• Historical property performance

Buyers should independently evaluate the property’s NOI rather than relying only on a marketing brochure.

What Financial Documents Might a Commercial Lender Request?

Requirements vary by lender and loan program, but borrowers should be prepared for substantial financial documentation.

Potential documents can include:

• Personal financial statement
• Business financial statements
• Business tax returns
• Personal tax returns
• Profit and loss statements
• Balance sheet
• Bank statements
• Debt schedule
• Business plan or projections when applicable
• Entity documentation
• Property rent roll
• Commercial leases

Providing complete documentation early can help avoid unnecessary underwriting delays.

Commercial Property Appraisal

The lender will generally require an appraisal appropriate to the commercial property and transaction.

Commercial valuation can consider approaches such as:

• Income approach
• Sales comparison approach
• Cost approach

The applicable approach depends on the property and appraisal assignment.

For an investment property, the appraiser may analyze rents, operating expenses, NOI and capitalization rates in addition to comparable sales.

Environmental Review and Financing

Commercial lenders may require environmental due diligence before funding, particularly where the property has a history of potentially environmentally sensitive uses.

Examples can include:

• Gas stations
• Dry cleaners
• Automotive facilities
• Industrial properties
• Manufacturing facilities
• Properties involving fuel or chemical storage

Environmental requirements should be discussed early because additional investigation can affect the transaction timeline.

Balloon Payments and Refinancing Risk

Some conventional commercial mortgages mature before the loan is fully amortized.

When that occurs, the borrower may need to:

• Pay the remaining balance
• Refinance the loan
• Sell the property
• Negotiate another arrangement with the lender

Future interest rates, property value and financial performance can therefore matter even when the current payment is affordable.

Personal Guarantees

Commercial lenders may require guarantees from business owners or other principals.

The scope of a guarantee can materially affect personal financial exposure. Borrowers should understand the guarantee requirements and obtain appropriate legal advice before signing loan documents.

Prepayment Penalties

Commercial financing may contain prepayment restrictions or costs that affect the economics of selling or refinancing before maturity.

Before selecting a loan, understand:

• Whether prepayment is permitted
• Whether a penalty applies
• How the penalty is calculated
• How long the restriction lasts

This can be particularly important if the business expects to expand, relocate or sell the property before the loan matures.

Should You Get Financing Before Searching for Property?

You do not necessarily need final loan approval before beginning a commercial property search, but early lender conversations can be extremely useful.

Before making offers, try to understand:

• Likely borrowing capacity
• Required equity
• Eligible property types
• Owner-occupancy requirements
• Expected interest-rate structure
• Amortization
• Loan maturity
• DSCR requirements
• Liquidity requirements

This information allows the property search to focus on realistic opportunities.

Financing Should Be Part of Your Due Diligence Timeline

Loan approval and property due diligence often occur simultaneously.

The lender may need:

• Appraisal
• Environmental review
• Title work
• Property financials
• Lease information
• Insurance
• Borrower documentation

Your purchase agreement and financing timeline should therefore be coordinated carefully.

Commercial Financing Comparison Checklist

Common Commercial Financing Mistakes

• Waiting until after finding the property to speak with lenders.
• Assuming commercial loans work like residential mortgages.
• Comparing loans based only on interest rate.
• Confusing loan term with amortization.
• Ignoring a future balloon payment.
• Underestimating the cash needed beyond the down payment.
• Failing to understand personal-guarantee requirements.
• Ignoring prepayment provisions.
• Using projected NOI without verifying the property’s actual financials.
• Assuming every commercial property qualifies for SBA financing.

Commercial Real Estate Financing FAQs

This article is provided for general informational and educational purposes only and does not constitute lending, financial, tax, legal or investment advice. Loan programs, interest rates, eligibility requirements, underwriting standards and SBA rules can change. Buyers should obtain current information directly from qualified lenders, Certified Development Companies, the U.S. Small Business Administration and appropriate professional advisors before making financing or real estate decisions.