Commercial loans are a great way for businesses to secure funding for projects and investments. They enable businesses to purchase or refinance properties and can provide a cost-effective solution for financing.
Whether you are considering a commercial loan for a retail space, office, or industrial facility, this ultimate guide will provide you with the necessary information to make an informed decision.
Here, you’ll find all the essential information about commercial property loans, including how they work, the application process, eligibility, and where you can apply. This will enable you to be more than prepared to apply for a loan and make the best decision for your business.
Commercial Property Loans; An Overview
Commercial property loans are a type of loan taken to purchase or refinance non-residential properties. These loans are meant exclusively for properties that run a business, such as office spaces, storage warehouses, and shopping complexes and are made to businesses or individuals who want to finance or refinance a commercial property.
How Do Commercial Property Loans Work?
A commercial property loan requires the borrower to apply for a loan and provide the lender with information about the property they want to purchase, their financial history, and their credit rating. Using this information, the lender evaluates the borrower’s ability to repay the loan and, if deemed creditworthy, provides the borrower with the funds needed to purchase the property.
To secure the loan, the borrower must mortgage the property they wish to purchase. This means that if the borrower stops making payments on the loan, the lender can take possession of the property and recover the investment.
The lender then provides the borrower with a loan agreement containing terms and conditions that spell out the borrower’s obligations. These include the repayment schedule, loan interest rates, and fees and penalties associated with the loan. Considering the nature of commercial property loans, you need to deal with established lenders, such as Finance Compound, to avoid any inconveniences in the future.
Who Can Apply for a Commercial Property Loan?
Commercial property loans are made available to businesses and individuals who want to finance or refinance commercial real estate, including corporations, partnerships, and sole proprietors.
What Are the Eligibility Requirements?
To be eligible for a commercial property loan, the borrower must meet certain requirements. The lender will require the borrower to provide the following information and documentation:
- Bank statements
- A business plan
- Business tax returns
- Details about collateral
- A third-party appraisal of the property
- Books, records, and financial reports
The lender will evaluate this information and documents to determine the borrower’s eligibility and approve the loan if everything checks out.
How to Improve the Chances of Getting Approved
New businesses or individuals with bad credit may face more challenges when applying for a commercial property loan. Some actions that businesses and individuals can take to improve their chances of getting approved include paying off existing debt, choosing a cheaper property, pledging additional collateral, adding a cosigner or investor, and agreeing to pay a larger down payment
Where to Get Commercial Property Loans
Borrowers can get commercial property loans from various institutions, including:
1: Physical and Online Banks
Most banks provide commercial property loans; however, the typical loan amount for a bank is around $1 million.
Benefits
- Favorable interest rates
- Long-term financing options
- Possible discounts if you are an existing customer
Drawbacks
- The process can be slow
- Banks require extensive documentation
- Banks only give out loans to borrowers with good or excellent credit
2: Private Commercial Lenders
Compared to banks, commercial lenders charge a higher interest rate; however, if you need a loan fast, this is a great option.
Benefits
- Faster approval than banks
- Lower fees and closing costs
- Less strict underwriting standards
Drawbacks
- Interest rates are higher than banks
- Most commercial loans are short-term
- It may require a balloon payment in 5 to 10 years
3: Hard-Money Lenders: Short-Term Lenders
Hard-money loans are short-term loans made by private companies based on the value of the property you want to purchase.
Benefits
- Fast approval
- Easy to qualify for
- It does not evaluate a borrower’s credit rating
Drawbacks
- Higher interest rates
- Short-term financing
- Lower loan-to-value ratio
Make Your Property Ownership Dreams Come True with Commercial Property Loans
Taking out a loan to finance a commercial property purchase can be a complicated and overwhelming experience. With so many different types of commercial property loans and lenders, it can be difficult to figure out which loan is right for you.
That said, whether you’re a real estate investor, small business owner, or just trying to get a better understanding of the process, we hope that this guide has provided all the information you need to make an informed decision and get the most out of your commercial property loan.
