Many investors enter a commercial transaction with expectations formed in the residential market, only to discover that the rules are different. With commercial property, the bank does not finance a dream—it finances cash flow. It checks who the tenant is, what the lease says, and what will happen if the tenant leaves.
LTV Ratios
For residential properties, the LTV ratio can reach three-quarters of the property’s value. For commercial property, the standard range is lower, generally between half and two-thirds of the property’s value, and sometimes even less for special-purpose or vacant properties. The implication is simple: significantly more equity is required, and in a transaction worth millions of shekels, this can be decisive.
Interest Rate and Margin
Following three consecutive rate cuts, the Bank of Israel interest rate stood at 3.25 percent in September 2026. This reduction has a positive effect on financing costs, but the credit margin on commercial properties remains higher than for residential properties. It reflects the bank’s assessment of the risks associated with a single tenant, a vacancy period, and a stock of properties that may be difficult to sell quickly.
| Parameter | Residential | Commercial |
|---|---|---|
| LTV ratio | Up to approximately three-quarters | Usually half to two-thirds |
| Interest margin | Relatively low | Higher |
| Basis of assessment | Borrower’s income | Property cash flow and tenant |
| Additional collateral | Usually none | Sometimes a guarantee or additional lien |
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What the Bank Actually Checks
The bank wants to see a signed lease with a substantial remaining term, a tenant with proven financial strength, a debt service coverage ratio showing that the cash flow comfortably covers the repayments, and properly documented permits and registration. A vacant property, even if attractively priced, will receive less favorable terms or be declined.
Three Costly Mistakes
The first is assuming the LTV ratio available for an apartment and reaching the signing stage without sufficient equity. The second is calculating repayments based on gross rent rather than after municipal property tax, insurance, maintenance, and vacancy costs. The third is ignoring VAT. In a commercial transaction, VAT is an amount that must be timed and planned for—not a surprise at the end of the process.
How to Prepare Properly
Prepare a conservative cash-flow projection for the property before approaching the bank, including a scenario in which the tenant leaves. Bring the lease, the tenant’s financial statements, and the expense data. At Flamingo, we help prepare this file because a bank that sees well-organized, professionally managed cash flow offers better terms.
Further Reading
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