In most cases, a commercial real estate loan is a financing vehicle that businesses use to buy properties. For companies to get a commercial loan, they will need to have good credit, make a substantial down payment, and use most of the property to get financed for the business.
Some of the Things You Will Need for a Commercial Real Estate Loan
A business needs to remember that even though most of the property needs to get used for their business, they can still lease out up to 49% of the space. When companies understand this concept, they realize that a commercial loan offers quite a bit of flexibility.
One example of why a real estate loan may be appropriate includes buying an office building that will house your business. You can also use proceeds for expanding or moving to a new retail space for your store, purchasing a new warehouse to hold all of your inventory, or buying, building, or remodeling a hotel where the business will operate. As any business owner can see from any of these examples, the purpose of a real estate loan is to grow or improve an existing business.
The Different Types of Loans
There are various types of loans a business can avail themselves of to finance commercial property. Each type has its own separate rates, terms, and requirements for eligibility, as well as different application processes. The type of loan most people are familiar with is a bank term loan that is quite similar to a mortgage on a home.
Another alternative for businesses is to get an SBA loan, where the Small Business Administration does not provide the loan but guarantees the loan to a lender. Businesses can also use financing vehicles such as a line of credit where a business that owns a property uses it to borrow against the equity in the property.
Some of the Items Required for a Loan
As a starting point for any application, a lender will want to know that they have the proper amount of security in the property. Because of that, you will generally need to have at least 25% equity in the property or put down a 25% down payment on new acquisitions.
Just as with individuals borrowing money, a lender will want to ensure that your business has good credit. Even with that, lenders generally want to see the personal credit scores of business owners as well.
Commercial real estate loans offer a great way to expand the real estate holdings of a business. Companies need to do their homework to find the best type of loan with the best terms for them.