Commercial loans for real estate are used mainly for business purposes rather than residential purposes. There has been a steady growth in commercial investment. It is a kind of mortgage secured by a lien on commercial properties. Commercial real estate refers to any real estate used for business purposes.
Commercial loans for real estate are sought by small businesses that seek to purchase, renovate, or expand their sites. These loans are usually granted to investors like partnerships, corporations, developers, funds, trusts, etc. Financing for venture includes development, acquisition, and construction of properties is accomplished through commercial loans for real estate. Such loans let businesses purchase or renovate a property and finance it with a mortgage. Most of the commercial real estate loans require that the owner owns the property, and there is also a particular specification that states the business needs to reside physically in at least 51% of the building. If somehow the majority of the property is not occupied by the owner, the borrowers can undoubtedly look for an investment property loan instead.
Multiple businesses use commercial loans for real estate to finance different types of properties, which include retail or shopping centers, buildings, offices, hotels, restaurants, apartment buildings. Terms and conditions on these loans vary widely depending upon the property that is being financed.
Types of Commercial Loans for Real Estate
- Traditional commercial mortgage- Commercial loans for real estate can be guaranteed for numerous properties such as industrial buildings, office buildings, rail centers as well as multi-family units. The property must be owner-occupied. The property that you purchase is secured in a traditional commercial mortgage loan.
- SBA 7(a) Loan– The small business administration flagship loan 7(a). This loan is used for buying land or building; some people also use this loan for an renovating existing property.
- SBA 504 Loan- The SBA offers loans specifically for the real estate occupied by the owner or for long term equipment purchase. When the borrower applies for this type of loan is that they have to pay 10% as down payment.
- Conduit loans– Conduit loans are pooled together. This pooled amount is then sold to investors on a secondary market. These loans be are strictly secured. The significant differences indicate prepayment and loan administration. You also get some flexibility when negotiating loan terms.
How to get a Commercial Loans for Real Estate?
Commercial loans for real estate are used to purchase or even renovate the commercial property. Lenders come up with the norm that the property has to be occupied by the owner, which means that the business should at least hold 51% of the building that it is operating on. You have to decide the type of commercial loan you will require depending upon the business and property.
What are the key factors that you need to consider while applying for a commercial loan for real estate?
Whether we are applying for a commercial loan or any other kind of loan, there are certain factors that you need to take into account. Since there are many lenders who offer different interest rates for commercial loans, it becomes important that you strictly scrutinize all the options. The following pointers will help you with the same :
- Find out the interest rates offered by the banks. Different banks will offer different APR, it might not be that big of a difference, but even the smallest change in interest rate can impact the EMIs.
- Prepauent feature- You must enquire about the prepayment option, is there any kind of penalty on it or not.
- Other costs- You must check what the different costs involved in the commercial loan application are.
Commercial Real Estate Loan Qualifications
There are precise specifications that need to be met when applying for a commercial loan for real estate.
- A third party appraisal for the property
- Proof of citizenship
- Credit card reports of the business
- Projected cash flows for life of the loan
- Up to five years of tax return
- Business plan explaining how the property will be used.
Commercial loans for real estate application will become easier, if you take the above mentioned points into consideration.