What Is a Commercial Real Estate Loan?

A commercial real estate loan is basically a mortgage for any commercial property. Commercial properties are typically categorized as multi-family, retail, hospitality, office, or warehouses. All of these different types of real estate will qualify for commercial loans.

If you are looking for a commercial loan, a specialized and knowledgeable lender is the best place to start. Commercial mortgages are generally the same as their residential counterparts, but there are some key differences that separate the two types of financial vehicles – we’ll provide all you need to know below.

The process of securing a commercial real estate loan may require more work than a private loan, but this is for good reason – with that extra diligence, and professional support, it’s possible to create a real estate loan that’s tailored to your commercial requirements.

Commercial Real Estate Loan

The ABCs of Commercial Real Estate Loans

Most real estate developers, owners, and investors rely on loans to acquire and maintain their properties. Depending on the amount of the loan, a commercial mortgage can be provided by a bank or other financial institution. Many local and regional banks may put a limit on the amount that they will provide to commercial borrowers, so doing your research and understanding how much you’d like to spend is step one to success.

The bank lends the money to you based on your ability to pay that specific mortgage each month. As such, part of the process is providing proof of the income that your property will provide once open. For multifamily properties, it will be the monthly rent that the tenants pay, and so on for all of the different asset types. Depending on the interest rate of your loan, you’ll also need to provide your lender with your monthly cash flow too for that extra level of security. Depending on various factors such as the age and location of the building, the coverage ratio may vary too.

Once you’ve completed your application, your lender will then have the property appraised and that will be the determining factor of the value of the asset and amount that you can borrow. Banks have set guidelines on the Loan-to-Value that they allow when making a loan. This protects the lender in the event that the loan defaults and they are required to initiate foreclosure proceedings – and also protects you, by ensuring you can afford to pay the loan on your property safely and comfortably.

Commercial Real Estate Loan Terms Of Agreement

Commercial loans can have a repayment period of up to 30 years. Borrowers can negotiate terms such as interest rate, an interest-only period, and the level of debt service that needs to be maintained throughout the life of the loan. Many commercial mortgages also have what is called a balloon payment at the end of their terms. This requires that the entire outstanding loan balance be paid on the agreed-upon date of the balloon payment. With expert advice and professional support, refinancing is a possibility to negate this additional cost through re-financing.

Commercial real estate loans may be slightly more complicated than their personal counterparts, but it’s for good reason. By ensuring your cash flow and providing the funds to set your business up, that loan might be the kickstart you need to get your business going. If you would like to know more about your commercial real estate loan options, contact our team today! Securing financing for a commercial property is easier with a professional eye, and as a friendly and experienced team, we’re exactly the support you need.