Commercial Property Loan: What You Need To Know
Starting your business venture also means investing in a commercial property where your store or warehouse will be located. It’s good if you have the cash flow to buy a property, but even if you don’t, you can still purchase a commercial property.
Commercial property loans are offered by banks and other lenders to aspiring entrepreneurs who wish to have stores and warehouses for their new business ventures. Are you thinking of getting a commercial property loan? Read below.
What is a commercial property loan?
A commercial property loan is a form of mortgage loan for a commercial property. This form of loan is for business purpose only. Examples of commercial real estate are hotels, office blocks, product warehouses, and shopping stores and complexes.
Buying a commercial property can be for the personal use of the buyer, or for leasing the premises out to a third person. And to obtain the money needed to purchase the commercial property, one could get a commercial property loan.
Different from a home loan
You might have some knowledge about getting a mortgage loan, especially if you already experienced getting a home loan for your own home. However, there are a lot of differences between getting a home loan and getting a commercial property loan.
First, in commercial property loans, there is no mortgage insurance. Unlike in home loans, there is no option for insurance in commercial property loans to secure the property you purchased for your business.
Second, the prices are higher in commercial property loans than in home loans. In applying for a commercial property, you will need to have at least 20% of the property value as upfront cash. Some banks prefer 20-30% of the property value, especially if you do not have collateral to secure payment of your loan. Interest rates are also generally higher in commercial property loans.
Third, the term for paying off the loan is shorter than in a home loan. The usual term for paying off a home mortgage loan is 30 years, but in commercial property loan, you can expect to pay off the commercial property loan for up to 20 years, if negotiated. Smaller commercial property loans are paid off for a shorter mortgage period than bigger values.
Financing a commercial property loan
Once you have decided that you want to get a commercial property loan for your new business, the next thing you need to do is to look for a bank or lender to finance your project.
Look for a lender that specializes in the kind of business you want to do. Some lenders have different specializations, like for startups, low-risk commercial property investors, corporate borrowers, high-risk commercial property investors, and developers. By looking for a lender that suits your business, then there is a bigger chance that your application will be approved.
Compare the terms of the lenders. Commercial property lenders are free to impose their fees and terms, that’s why you must compare the different terms. Consider the following factors:
- Interest rate. Know the different advantages and disadvantages of variable and fixed interest rates. With variable interest rates, if the rate goes down, then the interest you pay will be less. But if the rate goes up, then you will pay more. With a fixed-rate, you will be able to have a fixed budget for your money, but you might also miss out on the rates going down.
- Loan term. Having a long loan term is not always the best option. Making a long-term loan can also mean that you will pay for higher interest rates since you will be paying for a longer period.
- There are fees attached to commercial property loans. A commercial property loan will also need a professional valuation, which amount will depend on the value of the property. If the property is less than $1 million, the valuation is usually $800, but for properties higher than $1 million, then the valuation will also be higher.
If you cannot handle the stress of looking for a lender and comparing lenders all by yourself, the best solution is to get a commercial property loan broker.
Getting a commercial loan expert will save you the hassle. They will look for the best deals and offers suited for your needs and financial status. Click this URL to know more about commercial loan experts.
Security for a commercial property loan
Having different collateral as security for a loan means different risks for the lender. Some standard commercial properties, like offices, factories, showrooms, warehouses, retail spaces, and storage units, are the best kinds of security in getting a commercial property loan. These properties are low risk for the lenders.
However, specialized commercial properties are considered high risk for lenders because these properties are harder to sell and more difficult in value. These properties include accommodations, car yards, petrol stations, landfills, vineyards, recreation centers, and restaurants.
Starting a business can be exciting, yet tricky at the same time. Getting a commercial property loan might be the best solution for our dilemma in financing your business real estate. Look for a commercial loan expert to help you in making a learned decision.