Commercial properties also mean to be the income, investment property, or commercial real estate that generates profits by housing business or land either from rental income or capital gain. It also includes industrial properties, hotels, retail stores, office buildings, malls, warehouses, etc. It can also include larger properties. The purchase or renovation of such properties will cost big, so the finance is given by a commercial real estate loan.
There are five types of commercial real estate loans,
SBA 7(a) Loan, CDC / SBA 504 Loan, Traditional Commercial Mortgage, Commercial Bridge Loan, and Commercial Hard Money Loan.
The commercial loan process is not the same as the residential mortgage process. Commercial lenders will charge high-interest rates than a home loan.
Deciding the Amount of Loan You Need
You should know how much you can afford and then fix the amount to borrow depending on your current needs. In most loans, a second mortgage is not possible. The traditional acquisition loan is provided to the borrower once he/she purchases a new property. The required down payment, in this case, would be between 20-25% of the total cost. For traditional loans, smaller down payments are required.
Before choosing a lender make sure that you get the capital amount fully. If you don’t get the required cash, it may result in failed small business.
- Understand Your Loan Repayment Terms
- There are two types of commercial real estate loans,
- long-term loans that last for 5 to 20 years and
- intermediate-term loans of 3 years or less.
The borrowers should pay the amount before their deadline, first, they will pay the principal & interest amount after that the remaining amount will be going on. Non-bank lenders will offer credit requirements for commercial loans and may even offer long-term commercial loans. The interest will depend on your financial health, creditworthiness, and the type of business.
Determine Your Down Payment Amount
A home mortgage loan requires a 20% down payment, this value will differ for commercial real estate purchases.
The commercial lenders fix the minimum of 30% down payment.
With SBA Loans, for instance, you may be offered a loan of up to 90%, and you get to pay a 10% down payment.
If you need a loan for commercial real estate for a property worth between $250,000 and $5 million, you’ll need a down payment of 25-30%.
The private commercial lenders will provide a 15% down payment initially and then go for the remaining 85%.