Residential vs. Commercial Financing: 5 Key Differences Every Broker Needs to Know
If you’ve been working in residential mortgages, you already know how to guide clients through home financing. But once you step into commercial financing, the rules change. The differences aren’t just in loan size; they’re in how lenders assess risk, how deals are structured, and how you, as the broker, position yourself.
Here are the five biggest differences you need to understand before diving into commercial lending.
1. Borrower Qualification: Client Income vs. Asset Performance
Residential: Approval is driven by your client’s personal income, credit score, and debt service ratios. If they’ve got stable employment and a solid Beacon score, they’re usually good to go.
Commercial: The spotlight shifts to the asset or business itself. Lenders ask: does this property produce enough income to pay for itself? Your client’s financials still matter, but the rent roll, leases, and operating statements are what really drive the deal.
👉 As a broker, you’re not just proving your client is reliable—you’re proving the property is a safe bet.
2. Property Valuation: Market Comparables vs. Income Approach
Residential: Value is based on comparable sales. If three bungalows sold nearby for $500K, that’s the benchmark.
Commercial: Valuations are income-based. Lenders calculate value using net operating income (NOI) divided by a cap rate.
👉 The stronger the income stream, the higher the valuation. Cosmetic upgrades matter less than the numbers on the rent roll.
3. Loan Terms: Standard vs. Negotiated
Residential: You’re working with pre-set loan products—25-year amortizations, fixed or variable rates, and standard prepayment rules.
Commercial: Terms are negotiated deal by deal. Amortizations are often shorter (15–20 years), rates are typically higher, and prepayment penalties vary widely.
👉 As the broker, you’re not just finding a lender—you’re structuring and negotiating the deal.
4. Documentation: Streamlined vs. Extensive
Residential: Income docs, credit checks, down payment verification—fairly straightforward.
Commercial: Prepare for a document-heavy process: environmental assessments, leases, rent rolls, business financials, appraisals, even zoning reports.
👉 If your client isn’t organized, you’ll need to coach them through building a proper deal package.
5. Decision-Making: Automated vs. Relationship-Driven
Residential: Many approvals are automated through lender portals. Tick the boxes, and you’ll get a quick “yes” or “no.”
Commercial: Approvals happen through credit committees and account managers. Your ability to present the deal—clearly and credibly—makes a huge difference.
👉 Commercial financing is where your relationship skills and presentation game really matter.
Final Thoughts for Brokers
Residential and commercial financing may share the same foundation, but they’re completely different worlds. In residential, you’re plugging clients into pre-built products. In commercial, you’re structuring custom solutions that require a deeper understanding of financials, market conditions, and lender expectations.
For brokers, that means two things:
A steeper learning curve.
Bigger opportunities—higher deal sizes, stronger client relationships, and more credibility in the market.
🚀 Ready to take the next step?
Download my free Commercial Deal Discovery Checklist and start qualifying deals like a pro. Ready to qualify deals with confidence? Sign up to our exclusive Members only area where you can Download this checklist now and start spotting fundable commercial opportunities like a pro.
