Business owners usually acquire commercial property loans to expand or renovate their place of business. Unlike small business loans, these loans function similarly to a residential mortgage. This means that business owners can take out commercial property loans when purchasing a commercial property and finance the renovation. Some of the commercial properties funded using a commercial property loan include; hotels, restaurants, office buildings, and many others.
What are the rates for Commercial Loan?
Most commercial property loan lenders require the property being financed to be owner-occupied. This means that you must physically reside in the property in more than 50% of the building. Borrowers who do not have majority ownership in the occupation are advised to look at investment property loans.
The rates for commercial property vary from one lender to the other, and the property being financed. Depending on a commercial property loan, interest rates can be fixed or wavering. Commercial property loans have a down payment from 10% to 30% and repayment terms ranging from five to twenty-five years. Depending on the type of loan, some are amortized with constant monthly payments, while others tend to be interest-only payments payable at the end of the term.
How Do Commercial Property Loans Work?
If you want to relocate your business operations to a new location with a high price tag, commercial property loans are the go-to solution. Commercial loans
are secured by liens on the property you are purchasing for the business. A lien is a legal right given to the creditor by the property owner, which acts as a guarantee for the payment of the loan. In case the business owner cannot keep up with the payments, the lender can seize the property secured by a lien. In addition, the lien offers the lender a certain level of protection in case you default on your loan.
Business owners who opt to take commercial property loans must be prepared to put a lien on their business property. Although liens provide security to lenders, you are still expected to put down payment on your commercial property loans. In addition, these loans are amortized, meaning that there are fixed installments that last to the end of the loan term. A commercial loan is referred to as a balloon loan, has a term that usually ranges from five to seven years. Borrowers have a fixed monthly payment which is calculated in the same way as traditional. However, after the set term is over, you will not pay monthly installments but spend the rest at the end of the loan’s lifespan.
Applying for a Commercial Real Estate Loan
If you plan on applying for a commercial loan, it is advisable to ensure that all your finances and relevant documents are in order. Compared to residential mortgage loans, these types of loans have a more rigorous underwriting process.
Business owners need to have a clear and well-detailed business plan before getting these types of loans. The reason for this is to ease the verification process by lenders since they are likely to scrutinize the property being purchased and the plans you have with it. Therefore, it is advisable to shop around and assess different rates from various lenders before making a decision.