Bank commercial mortgage for investment property

A bank loan is the default first call for an investor buying or refinancing a small building that is not a clean agency deal: a mixed-use building with storefronts, a strip center, a single-tenant industrial building, a 12-unit building with deferred maintenance. The supply is deep. FDIC call report data: About $3.06 trillion in bank commercial property, multifamily and construction loans³, spread across 4,238 FDIC-insured institutions³. There is almost always one that knows your market.

What you trade for that flexibility is a personal guarantee, a balloon well before the loan is paid off, and covenants that keep testing the property after closing.

How a bank arrives at the loan amount

The bank runs two tests and lends the lower result. The first is its own loan-to-value policy. Federal regulators cap that policy at 85% maximum LTV for improved (completed, income-producing) property⁴, and LTV is measured at origination and counts all senior liens on the property⁴. The second is the debt service coverage test: DSCR = net operating income divided by annual debt service⁵. The bank’s policy sets the minimum ratio, and it underwrites its own NOI, not yours.

Worked example (illustration). A 24-unit building under contract at $3,200,000 with an underwritten NOI of $240,000. Suppose the bank’s policy is 75% LTV and 1.25x coverage, and it quotes 6.75% on a 25-year amortization.

Test	Math	Loan it supports
Loan-to-value	$3,200,000 × 75%	$2,400,000
Coverage	$240,000 ÷ 1.25 = $192,000 of debt service. At 6.75% over 25 years each $1 of loan costs $0.0829 a year	$2,315,800
Loan offered	lower of the two	$2,315,800 (72% LTV)

Coverage binds by about $84,000. Three things move it: a lower rate, a longer amortization, or a higher NOI the bank believes. Arguing about the appraisal will not help when coverage is the constraint. Run your own numbers in the DSCR calculator before you apply.

The balloon is the real cost

That loan is fixed for five years on a 25-year schedule. After 60 payments the balance is still about $2,104,000, roughly 91% of the original loan. You refinance that at whatever rates and bank appetite exist in year five. This is why maturing bank loans are the biggest single block of 2026 maturities, $396 billion of bank and thrift loans (21% of their book)⁶ by MBA’s count (every holder).

Ways to reduce the risk at the term sheet stage:

• Ask for a seven- or ten-year fixed period. Some banks will, for a higher rate or deposits.
• Ask for a one-time extension option at maturity with a defined repricing formula (index plus the original spread).
• Avoid a swap-based fixed rate if you may sell early; breaking a swap when rates have fallen can cost more than a step-down.
• Model the refinance before you buy with the refinance gap calculator.

Why two banks quote the same deal so differently

Bank pricing is not a market rate. It depends on three things that have nothing to do with your building.

1. Cost of funds. A bank with cheap core deposits can price tighter than one funded with brokered deposits or borrowings.
2. Concentration. Examiners look harder at banks whose CRE book is large relative to capital. One screen: Total CRE at 300% or more of total capital, with 50% or more growth over 36 months⁷. The 100% and 300% thresholds are supervisory screens, not caps on CRE lending⁷, but a bank near the screen often stops quoting new investor loans, and it will not tell you that is why.
3. The relationship. Moving your operating and reserve accounts can be worth real spread. Ask the lender to put the deposit expectation in the term sheet so it is not a surprise covenant later.

Lending conditions matter too. The Federal Reserve’s July 2026 survey: Banks generally eased CRE standards in Q2 2026, with demand basically unchanged (Fed SLOOS, July 2026)⁸. The same survey adds: Banks report CRE standards remain at the tighter end of their range since 2005⁸. Easier at the margin is not the same as easy.

Get at least three quotes: one community bank under $1 billion in assets, one regional bank, and one credit union. Credit quality differs by bank size too. On non-owner-occupied commercial property loans in mid-2026, the FDIC reported 3.08% past due or nonaccrual at banks over $250 billion (down seven straight quarters)⁹, against 1.10% past due or nonaccrual at banks with $1 billion to $10 billion in assets⁹. Smaller banks with cleaner books are often the more willing lenders.

What the credit officer checks

Item	What they look for	How to prepare
Trailing operating statements	Two to three years plus year to date, reconciled to tax returns	Send the returns with the statements; unexplained gaps stall credit memos
Rent roll	Leases that match the roll, rollover in the loan term, concentration in one tenant	Flag any tenant over a fifth of income and show its lease
Global cash flow	Your other properties and income can cover a shortfall	Prepare a schedule of real estate owned with debt and NOI per asset
Liquidity and net worth	Post-closing cash and a net worth that supports the guarantee	Lenders often look for liquidity of several months of debt service after closing
Appraisal or evaluation	$500,000 or less: a bank may use an evaluation instead of a full appraisal10	Expect an appraisal on anything larger; it is ordered by the bank
Environmental and condition	A Phase I and often a property condition report on older buildings	Order early on a building with a dry cleaner, gas station or auto use nearby

Common deal killers

• Coverage below the bank’s floor after its own expense load. Banks add a management fee and a replacement reserve even if you self-manage. Underwrite that way first.
• Seller-reported income the tax returns do not support. The bank sizes on the returns.
• A single tenant with a short lease. If the lease ends inside the loan term, expect a lower loan amount, a reserve, or a decline.
• Sponsor liquidity. A buyer who spends every dollar on the down payment fails the guarantor review even on a good building.
• Concentration. If the answer is slow and vague, ask directly whether the bank is taking new investor CRE loans.

Where a bank loan wins and where it loses

If you need	Bank fits?	Better option to check
Non-recourse on a stabilized 5+ unit building	No	Fannie Mae small loans, Freddie Mac small balance
A ten-year-plus fixed rate with low leverage	Rarely	Life company loans
Financing on rental income, light on personal income documents	Sometimes	DSCR commercial loans
Several buildings on one note	Yes	Portfolio and blanket loans
Light prepayment, early sale likely	Yes	Compare a credit union
A building your own business occupies	Use the owner-user route	Owner-occupied loans and SBA

For a broader view of how banks operate as a lender type, see bank lenders.