Small-Balance Commercial Loans: What to Know Before You Apply
Many investor commercial deals are too small for big banks to prioritize. Small-balance commercial lending fills that gap. Here's how it works.
Short answer
Small-balance commercial loans finance smaller income properties, such as small apartment buildings, mixed-use, retail and office, at loan sizes larger lenders often don't prioritize. They're underwritten on the property's income and value, with attention to the borrower's experience and the quality of the tenants and leases.
Key points
- Built for smaller commercial properties and loans.
- Underwritten on income, value and experience.
- Preparation speeds approval more than anything.
What they finance
- Apartment buildings of five units or more; see five units and up
- Mixed-use buildings; see mixed-use properties
- Small retail, office and light industrial properties
How they're underwritten
Lenders focus on the property's NOI, value and debt service coverage, plus your experience with similar properties; see NOI, cap rate and DSCR. Lease quality and tenant mix matter more as the commercial share of income rises.
Looking at a 5+ unit or mixed-use deal? Send the rent roll and operating statements and we'll take a look. Review my deal
What to prepare
- Rent roll and leases
- Trailing 12-month operating statements and a current budget
- Your schedule of real estate owned; see lender-ready operations
- The purchase contract or current loan details
- A short summary of your plan for the property
Questions to ask any lender
Term and amortization, prepayment structure, recourse, reserve requirements and how long approval takes for a complete file.
Frequently asked questions
What is a small-balance commercial loan?
It's financing for smaller income-producing properties and loan amounts that larger commercial lenders often don't prioritize.
What properties qualify for small-balance commercial loans?
Commonly small apartment buildings, mixed-use, retail, office and light industrial properties, though each lender sets its own list.
How are small-balance commercial loans underwritten?
On the property's net operating income, value and debt service coverage, along with the borrower's experience and the strength of the leases.
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