Investor Review: COMMERCIAL PROPERTY LOANS
Understanding Commercial Property Loans BUSINESS OWNERS MUST UNDERSTAND HOW COMMERCIAL PROPERTY LOANS WORK.
TAYLOR MILLER
S ecuring a commercial real estate loan is a critical step for any business that requires office space, a retail storefront, or a manufacturing and shipping space. A commercial loan is needed whether you intend to purchase, refinance, or redevelop commercial real estate. This process is notably different from obtaining a residential mortgage, requiring a distinct approach and understanding. By comprehending these differences, adequately preparing, and knowing what to expect in terms of timeline, you can significantly enhance your chances of successfully securing a commercial loan.
the term. The focus for lenders is more on the property’s income potential and the nature of the business operations. DOWN PAYMENTS AND INTEREST RATES. The requirements for down payments and interest rates also vary. Residential loans generally require down payments ranging from 3% to 20%, depending on the loan type and your creditworthiness. Commercial loans demand larger down payments, typically between 20% and 30%, reflecting the higher risk associated with commercial properties. Consequently, interest rates for commercial loans tend to be higher than those for residential mortgages.
Residential loans are for purchasing or refinancing single-family homes or multifamily properties with up to four units, predominantly for personal use. In contrast, commercial loans are designed for properties intended for business activities, such as office buildings, retail spaces, industrial warehouses, and larger multifamily properties. LOAN TERMS AND STRUCTURE. When it comes to loan terms and structures, residential loans typically offer longer terms, ranging from 15 to 30 years, and often include fixed interest rates. Lenders place considerable emphasis on your personal credit history and income. Conversely, commercial loans usually have shorter terms, between five and 20 years, and may come with either fixed or variable interest rates. These loans often include a balloon payment at the end of
COMMERCIAL VS. RESIDENTIAL LOANS
BEFORE YOU APPLY Before applying for a commercial
The primary distinction between commercial and residential loans lies in their purpose and use.
property loan, thorough preparation is essential.
62 | think realty magazine :: september - october 2024
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