Debt-Service Coverage Ratio (DSCR) loans are game-changers for real estate investors looking to scale their…
How to Prepare for a Commercial Mortgage: A Guide for Small Business Owners and First-Time Commercial Real Estate Buyers
If you’re a small business owner or a first-time commercial real estate buyer, securing a commercial mortgage is a significant step toward ownership and long-term financial stability. However, the process differs from residential loans and requires careful preparation. At Modern Community Capital, we help business owners and investors navigate commercial financing with confidence.
This guide will walk you through key steps to prepare for a commercial mortgage, helping you increase your chances of approval and secure the best terms.
1. Understand Your Financing Needs
Before applying for a commercial mortgage, clearly define your objectives:
 Property Type & Purpose – Are you buying an office, retail space, warehouse, or multifamily property? Will you operate your business there or lease it out?
 Loan Amount & Budget – Consider the total purchase price, potential renovations, and ongoing expenses.
 Loan-to-Value (LTV) Ratio – Lenders typically finance 65-80% of the property’s value, meaning you’ll need a down payment of 20-35%.
 Repayment Terms – Commercial loans usually range from 5 to 25 years, with fixed or variable interest rates.
2. Strengthen Your Financial Profile
Lenders assess your ability to repay the loan based on financial stability and creditworthiness. Key areas to focus on include:
 Credit Score – A strong personal and business credit score (ideally 680+) improves your chances of approval and favorable terms.
 Debt Service Coverage Ratio (DSCR) – Lenders look at DSCR, which measures your ability to cover loan payments. A ratio of 1.25 or higher is ideal.
 Business Financials – If you’re buying a property for your business, be ready to provide:
- Last 2-3 years of tax returns
- Profit & loss (P&L) statements and balance sheets
- Cash flow projections showing your ability to afford payments
 Personal & Business Assets – Having liquid assets or collateral can improve your loan approval chances.
3. Prepare Key Documents
Lenders require a detailed application package. Common documents include:
 Personal & Business Tax Returns (Last 2-3 years)
 Bank Statements (Last 3-6 months)
 Business Plan (If applicable, explaining how the property fits into your business strategy)
 Lease Agreements (For investment properties, showing projected rental income)
 Debt Schedule (List of outstanding business or personal loans)
 Legal Entity Documents (LLC, partnership agreements, etc.)
Having these documents ready speeds up the loan approval process.
4. Assess Your Down Payment & Closing Costs
Commercial mortgages require larger down payments compared to residential loans. Be prepared for:
 Down Payment – 20-35% of the purchase price
 Closing Costs – Typically 2-5% of the loan amount, covering appraisal fees, legal fees, title insurance, etc.
 Reserves – Some lenders require 6-12 months of loan payments in reserve.
5. Research Loan Options
There are different types of commercial loans. The best option depends on your business, property type, and financial profile:
 SBA 504 & SBA 7(a) Loans – Ideal for small business owners buying property for their operations, offering low down payments (as low as 10%) and long-term financing.
 Conventional Commercial Mortgages – Offered by banks, credit unions, and private lenders, requiring strong credit and financials.
 Bridge Loans – Short-term financing solutions used for quick purchases or value-add renovations.
 DSCR Loans – For investors who qualify based on rental income rather than personal income.
 Owner-Occupied vs. Investment Property Loans – If you’re buying a property for your business, you may qualify for lower interest rates compared to purely investment properties.
6. Get Pre-Approved
A pre-approval shows sellers and real estate agents that you’re a serious buyer and gives you a clear picture of how much you can borrow. During pre-approval, lenders will review your financials, credit, and property type to give you an estimated loan amount and terms.
7. Work with a Commercial Mortgage Expert
Navigating commercial financing alone can be overwhelming. Modern Community Capital specializes in helping small business owners and first-time commercial buyers secure the right mortgage solutions.
We provide:
 Customized financing strategies tailored to your business needs
 Access to multiple lenders offering competitive rates
 Guidance through the entire process, from application to closing
Ready to Take the Next Step?
If you’re preparing to buy your first commercial property, let Modern Community Capital help you find the best financing solution. Contact us today for a consultation and take the first step toward securing your commercial mortgage!
