Question 1

What is DSCR and what ratio do lenders require?

Accepted Answer

DSCR (Debt Service Coverage Ratio) measures how much net operating income (NOI) a property generates relative to its annual loan payments. A DSCR of 1.0 means income exactly covers payments. Most commercial lenders require a minimum DSCR of 1.20–1.25, meaning the property generates 20–25% more income than needed to service the debt.

Question 2

What is a cap rate and how is it used in commercial lending?

Accepted Answer

Cap rate (capitalization rate) is the property's NOI divided by its value or purchase price, expressed as a percentage. Lenders use it to assess investment risk and value. A lower cap rate indicates lower risk (and typically lower yield). Cap rates for commercial properties in Bakersfield typically range from 5–8% depending on property type and location.

Question 3

What down payment is required for a commercial real estate loan?

Accepted Answer

Most conventional commercial loans require 25–35% down. SBA 504 loans can go as low as 10% for owner-occupied properties. Bridge and hard money loans may allow higher LTVs but at higher rates. The LTC (Loan-to-Cost) ratio applies to construction and value-add scenarios.

Question 4

What is the difference between a bridge loan and a permanent commercial loan?

Accepted Answer

A bridge loan is short-term financing (typically 12–36 months) used to acquire or stabilize a property before transitioning to permanent financing. It is interest-only, moves faster, and has more flexible underwriting. A permanent loan is long-term (5–30 year term with 25–30 year amortization) and requires stabilized occupancy and income.

Question 5

What does an SBA 504 loan cover and who qualifies?

Accepted Answer

SBA 504 loans are for owner-occupied commercial real estate and major equipment. They offer below-market fixed rates on the CDC portion (40% of project cost) with as little as 10% down. Qualifying businesses must be for-profit, have a tangible net worth under $15M, and average net income under $5M after taxes for the past two years.

Question 6

How long does it take to close a commercial loan?

Accepted Answer

Standard commercial purchase loans typically close in 30–60 days. SBA loans can take 45–90 days due to additional government processing. Bridge and hard money loans can close in 7–21 days. Construction loans take longer due to draw schedule setup. Dan will give you a realistic timeline for your specific deal type at the outset.

Question 7

Can I use this calculator for a multifamily property?

Accepted Answer

Yes. Properties with 5 or more units are classified as commercial real estate and this calculator applies. The Purchase scenario works well for multifamily acquisitions. For 2–4 unit residential investment properties, residential loan programs and guidelines apply instead.

Commercial Real Estate Loan FAQs

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