Michael Nieves
Commercial real estate loans are types of financing that a business might require whenever it intends to purchase or renovate a commercial property. Unlike residential mortgages, these commercial mortgages are specifically designed to serve the needs of business firms with the purpose of purchasing or enhancing such properties for income generation.
In this blog, we will focus on the most important things that the business owner needs to know in securing a commercial real estate loan, starting with the different kinds of loans and preparation for the application process and finally tips to secure favorable terms under a commercial real estate loan.
Why A Commercial Real Estate Loan Is Important
A commercial real estate loan is one of the means businesses are facilitated to leverage financing for the purchase or refinancing of properties. Whether it’s an office building, retail space, or an industrial facility, loans often become a prerequisite for businesses that want to expand, upgrade their facilities, or just secure a permanent location.
In contrast, commercial loans have a higher interest rate with a shorter period of payback. Aside from this, these kinds of loans are usually guaranteed by the property itself, which is more risk-prone to the lender than a regular mortgage would be. For this reason, the lender will analyze the projected income of the property to determine if the borrower can service his loan.
Types of Commercial Real Estate Loans
There are many types of commercial real estate loans which serve various business purposes. Some of the most common ones include:
Traditional Commercial Mortgages
These are the most common form of financing in acquiring commercial properties. These normally have longer terms and may either be a fixed or variable interest rate. Business people use such loans to acquire office buildings, retail shops among many others that pay money on them.
SBA 7(a) Loans
Among such programs is the SBA 7(a) loan program, which provides real estate finance solutions for small businesses. It is one of the most common kinds of loans used in small businesses since the down payment required is quite low and the term of repayment can be made for a long time, compared with usual commercial loans.
Construction Loans
Development loans are advanced to developers or a businessman who wants to construct a new commercial venture from its very inception. These loans are, however, quite short-term, and the period for making an application is relatively pretty long as the lender needs to study the plans and projections of the project.
Bridge Loans
Bridge loans refer to a short-term loan that helps bridge the gap until the sale of an existing real estate property once a new one has been purchased. Business people can buy other properties using bridge loans before selling their current one.
Preparation Process for Commercial Real Estate Loan
Pre-approach preparation for a commercial real estate loan would really help much in smooth approval. Steps to be taken by the business owners are as follows:
Review Your Credit Score
As is the case when one applies for personal loans, the credit-worthiness of the borrower will play a significant role in the granting of a commercial real estate loan. This will make it essential to review the credit report even before the application, so that it shows accuracy and reflects one’s financial responsibility.
Gather Your Financial Documents
Expect to ask them for expansive documentation that will help them assess your stability concerning finance and profitability of your business. Tax returns, bank statements, business financials, and a detailed business plan might form part of it.
Secure an Appraisal of the Property
The amount you can borrow is equivalent to the value that your commercial property stands for, which you intend to buy. You only file for a loan after you have already done appraisal of that property. This way, the valuation of the property will be correct, and you get to set realistic expectations.
Make a Good Business Plan
A commercial real estate loan application forms the crux of a business plan that comprehensively addresses various aspects of your business. First, lenders want to see that your business is strategic and has realistic goals because this shows your ability to pay back the loan.
Hints towards Receiving an Attractive Loan
Commercial real estate lending is not something that can be taken lightly. It involves careful planning and negotiation. Here are some hints:
Shop Around for Lenders
Commercial loans in real estate vary when it comes to lenders. Shop around, and you will certainly find the most competitive deals for comparing loan offers and interest rates.
Negotiating Loan Terms
After your loan has been approved, negotiate its terms with your lender. You might request lower interest rates, lesser fees, or a longer term for repayment. Where one can express stability in finances, lenders are most likely to give you a good deal. For example, it includes some of the following: good credit score, minimum outstanding debt, and proven history of cash flow in business.
Benefits of Commercial Property Loans
Capital for Growth
The best thing about a commercial real estate loan is that it gives businesses the money needed to expand and grow. Their visions for buying a new property or even renovating an older property become possible due to these loans.
Tax Savings
The interest portion of a commercial real estate loan is usually tax-deductible, which means huge savings for the business house. Owning commercial property typically provides much business stability and appreciates in value day by day.
Conclusion
The process of getting a commercial real estate loan is quite cumbersome, and there is a process which business owners have to be well prepared for and understand, so they may obtain the financing necessary to reach their goals. Unleashing opportunities linked to owning or upgrading to commercial properties requires knowledge of the different types of loans and proactive measures toward bettering one’s business’s financial standing.
