Commercial Real Estate Loans & Property Financing

One of the most common American dreams is to own your own business. In order to make that dream become a reality you will want to know the facts about commercial real estate loans & property financing.

The majority of people who have their own business do not have enough capital to purchase their commercial real estate without taking out a loan. Property financing for this kind of venture is slightly different from getting personal property financed.

How to Secure a Loan on Commercial Property

When you are requesting a loan to purchase commercial property the amount of the loan will be secured by a lien against the property. The lien gives the lender the right to take possession of the property in the event that the borrower does not meet the specifications of the purchase contract.

In short, a lien gives the lender the right to take the property if you fail to meet your payments, or fail to do things like insurance the premises. The real value of the property you wish to buy is what will determine the amount of money a lender will provide you with.

Establishing a Down Payment

The majority of lenders will not enter into a financial agreement with you without you making a initial investment. The initial investment is the down payment you make when you get the loan.

The typical amount of money required as a down payment on commercial property is between 20% and 30% of the amount you wish to borrow. On many personal loans a down payment is waived, but commercial loans are usually larger, and riskier for the lender. These facts cause lenders to almost always require a down payment.

Think of your down payment as a show of faith to your lender. The lender will be giving you a sum of money that they trust you to repay. To show the lender that you fully intend to repay them you will put up a down payment of your own money.

Immediate Term Loans and Long term Loans

The commercial loan will not have the same repayment lengths as your average home loan would. Most home loans are established in fixed monthly payments that are made for periods of close to 30 years. Commercial loans are generally either short term or long term.

  • Short term commercial financing provides you the loan amount for a period of generally less than 3 years.
  • Long term commercial financing will provide you with the loan amount for a period of 5 to 20 years.

Another type of commercial loan is the amortized loan. With an amortized loan you will get a repayment time of 3 to 7 years. You will make monthly payments, but at the end of the loan cycle you will make one payment that is commonly called a balloon payment. This payment can often be very large.

Interest Rates and Fees

Commercial loans generally have higher interest rates than typical personal loans do. The interest rate that you are asked to pay in 2019 is between 3.35% and 6%. This interest rate is often determined by the type of lender that you get your loan from.

Banks and Credit unions will sometimes make commercial loans. If you want the best interest rates, and the easiest terms on a commercial loan you need to refer to a company like Clopton Capital. 

The fees that come with a commercial loan include:

  • Property appraisal cost
  • Surveying fees
  • Title searches
  • Legal costs
  • Loan origination cost
  • Loan application costs

Some lenders will require you to pay part, or all, of the fees before they will lend you the money. Some lenders will include the fees in your loan so you pay the fees off as you pay the loan off.

Always be certain that you completely understand the terms of the loan agreement you are entering into. Do not be afraid to ask questions, or take time to think about the agreement before you sign on the dotted line.