Building Operations

Everything You Need to Know About Property Inspections in Commercial Lending

How commercial property inspections work, who performs them, and why they matter for banks managing real estate-secured loans.

Jessica Wyman

Updated: Jan 6, 2026

What is a commercial property inspection?

A commercial property inspection is a structured visual review of a building and its site to document current physical conditions. Inspections are performed as part of loan underwriting, portfolio monitoring, or borrower compliance. They help confirm that a property remains in active use, is being maintained, and matches the expectations of the bank or lender that financed it.

Unlike residential home inspections, which are often performed for buyers, commercial inspections are typically conducted for institutional stakeholders. These include banks, credit unions, asset managers, or third-party consultants acting on behalf of a lender. The inspection does not evaluate building performance or code compliance. Instead, it records observable conditions to help assess risk.

Why do banks care about property inspections?

In commercial lending, the real estate being financed often serves as collateral for the loan. If a borrower defaults, the bank may rely on the property’s value to recover outstanding debt. Inspections help banks verify that this collateral remains in acceptable condition, use, and compliance throughout the life of the loan.

Unnoticed deterioration, changes in occupancy, or unreported site issues can affect resale value or delay recovery in the event of default. Physical inspections allow lenders to document these risks early, identify changes in borrower behavior, and make informed decisions about servicing or asset management.

Inspection Objective	Why It Matters
Confirm active use of the property	Vacant or abandoned buildings lose value and may require enforcement action
Monitor physical condition and maintenance	Deteriorated structures reduce collateral value and increase liability
Document compliance with permitted use	Unpermitted changes in use or tenant type may increase legal risk
Verify presence of loan collateral (equipment or inventory)	Missing or relocated assets reduce recovery potential
Create a time-stamped record of observed conditions	Supports future servicing, litigation, or regulatory review

By using an inspection process to monitor these factors, lenders can reduce exposure to loss and ensure that the property continues to perform as a financial asset

Who performs commercial property inspections?

The person or team assigned to conduct the inspection depends on the property type, loan purpose, and geographic location. Some banks use internal field teams, while others engage consultants or building professionals.

Inspector Type	When Used
Bank staff	Local properties, recurring visits, low-risk assets
Third-party field agents	Remote portfolios, high volume inspections
AEC professionals	Large commercial sites, technical or construction loans
Property managers	Bank-owned or directly managed assets

Inspections are not intended to replace engineering evaluations, appraisals, or code compliance reviews. They provide a practical summary of current physical conditions, supported by photographs and location-based notes.

When are inspections required?

Inspections may occur at several points in the loan life cycle:

Before closing, as part of underwriting due diligence
Annually or semi-annually during the loan term
When a borrower is behind on payments or under review
When occupancy or collateral conditions change
Prior to property release, sale, or transfer

The required frequency and scope may depend on internal policy, loan size, or property risk classification.

What gets inspected

A commercial property inspection documents observable conditions across the structure, building systems, and site features. The goal is to confirm that the property remains in acceptable physical condition, is being actively used, and shows no signs of significant neglect or un-permitted change.

Each category below represents a standard section of most inspection checklists used in commercial lending.

Building and envelope

Element	What to Document
Foundation	Cracks, signs of movement, water infiltration
Exterior walls	Surface wear, staining, open joints, patched areas
Roof (visible areas only)	Debris, ponding, material failure, visible repairs
Doors and entries	Operability, damage, boarding, broken locks or hardware

Site conditions

Element	What to Document
Parking and drives	Surface wear, striping, ADA access
Drainage	Standing water, erosion, clogged inlets
Landscaping	Overgrowth, trash accumulation, obstructed signage
Lighting and signage	Visibility, bulb outages, broken or vandalized fixtures

Life safety and compliance

Element	What to Document
Fire extinguishers	Tag status, accessibility, mounting location
Exit signage	Illumination, visibility, condition of signs and maps
Accessibility features	Entry ramps, marked parking, clear door access
Licenses and postings	Business licenses, permits, occupancy signs (if required)

Windows and glazing

Element	What to Document
Glazing condition	Cracked panes, fogging, broken seals
Frames and hardware	Corrosion, loose or broken handles and locks
Operability	Ability to open or secure as designed
Security concerns	Evidence of forced entry, boarded windows, missing screens

Plumbing systems

Element	What to Document
Pipe runs	Visible leaks, corrosion, unsupported or damaged piping
Fixtures	Operability of sinks, toilets, and other installed equipment
Stains or moisture	Signs of leaks at ceilings, walls, or floors
Insulation	Condition of exposed pipe insulation (where applicable)

HVAC and electrical systems

System	What to Document
HVAC units	Exterior condition, visible corrosion, label tags if present
Thermostats	Presence and operability
Electrical panels	Cover condition, labeling, obvious signs of tampering
Ductwork (exposed)	Disconnections, damaged insulation, signs of moisture intrusion

Inspections are non-invasive, and inspectors are not expected to test systems or access concealed components in their scope. Observations should be visual only and noted with location and photo documentation when possible.

Collateral, Occupancy, and Context

A complete inspection records more than just physical conditions. It also confirms the operational and contextual factors that may influence property performance or collateral value.

Category	What to Confirm	Why It Matters
Collateral assets	Equipment, inventory, or FF&E are present and match documentation	Missing items reduce recovery potential if borrower defaults
Occupancy and use	Property is open, in use, and consistent with loan terms	Vacancies, subleases, or closures increase risk
Surrounding area	Adjacent conditions support continued property use and access	Declining context can affect long-term asset value

Photograph collateral items where possible. Document any posted signs of closure, for-lease listings, or un-permitted use changes. Record neighborhood changes such as construction, vacancy trends, or limited access that could affect site operations.

Structuring a complete inspection report

A commercial inspection report should do more than store photos. It should present a consistent, reviewable summary of what was observed, where, and when. To be useful, documentation must be:

Organized by system or elevation (foundation, roof, south façade, interior units)
Supported by timestamped, captioned photos
Structured using predefined condition types or severity levels
Free from interpretation or opinion
Linked to previous inspections when available

Avoid vague labels like “OK” or “looks fine.” Instead, use objective terms such as “no visible cracking,” “patch at entry appears recent,” or “tenant signage missing at main façade.” Use one condition per note or photo set to maintain clarity.

Consistency across properties and inspectors supports clearer internal reviews and allows lenders to compare conditions across portfolios or timeframes.

Digital documentation in lending workflows

In commercial lending, documentation supports more than underwriting. It informs servicing, compliance, and asset recovery decisions. Field tools such as Layer help teams:

Standardize checklists by loan type or risk category
Link photos, tags, and notes to specific property areas
Export reports directly into credit files or internal systems
Track condition changes across recurring inspections

For multi-property portfolios or distributed field teams, digitizing the inspection process reduces risk introduced by inconsistent forms, unclear notes, or delayed uploads. It also ensures conditions are documented with enough specificity to support future decisions, including draw approvals, renewals, or servicing escalations.

Completing and Using the Inspection

Once the inspection is complete, teams should review the report for consistency, make sure all required areas were documented, and confirm that photos are clearly labeled. Reports should be stored with the loan file or servicing system for future reference.

Inspections provide a record of how the property is performing and where issues may need attention. They also support decisions about borrower compliance, servicing actions, or draw approvals. When used consistently, they help banks and lenders reduce risk and maintain asset value.

Digital tools like Layer can simplify this process by linking notes, photos, and location data in one place. Teams can create standardized checklists, track inspection history, and export reports as needed. For organizations managing multiple properties, this structure makes it easier to stay organized and responsive over time.