Commercial property loan is the best credit option offered by lenders and banks against a commercial property mortgage. It is a commercial property loan that gives you the best benefits and features that the lending market offers. Before Borrowing for Commercial Property, understand the concept of the commercial property loan in detail.
What is Commercial Property Loan?
A commercial property loan is the type of commercial loan opted for running a business or other commercial undertaking. Based on the commercial property loan concept, people can apply and avail the Loan for Purchase of Commercial Property, whether they aim to run their business or renovate or construct a commercial building.
Many banks and private lending agencies offer different credit options with customization in the existing conditions to benefit the applicants. Any business owner with commercial property can mortgage the property and avail a high-value commercial property loan with no end-use restriction. It is also considered as the Commercial Building Construction Loan because the loan amount can be used for renovation or construction of a commercial building.
How Does Commercial Property Works?
A commercial property loan is a type of mortgage loan where a loan is offered to the borrower against the mortgage of their commercial property, instead of residential property. Banks, private lenders, private investors and other capital sources are actively involved in offering commercial property loans. Unlike residential loans, the lenders of commercial property loans assume different risks, and there are different terms to meet by the borrowers.
Plus, commercial property loans are usually shorter than residential property loans. The term commercial property loan ranges from five years to twenty years, and the amortization period is always longer than other long-term loans. Plus, the lending agency also considers the nature of the purchased commercial property that acts as the collateral. The business owners’ creditworthiness, 3-5 years of financial statements, income tax returns, and financial ratios, like debt-service coverage ratio, loan-to-value ratio, and more, are considered when evaluating the commercial property loan. The loan amount is also decided based on the Buying Commercial Property Down Payment applicant is eligible for.
Commercial property loans are very expensive than other loans, and the down payments are higher, ranging from 20% to 30% of the total value of the property. As mentioned, interest rates are also steeper, which ranges from 10% to 20%. The commercial property loans backed by the SBA have the lowest rates, ranging from 7.75% to 10.25%, depending upon the length and size of the loan amount.
Different Types of Commercial Property Loans
- Permanent Loans – It is the most common commercial loan type, and it must have some amortization. The loan term usually lasts for five years that is written on the loan agreement.
- SBA Loans – It is the type of commercial property loan offered by traditional and non-traditional lending agencies, but SBA backs the loans. There are different types of SBA backed loans for the borrowers, of which the most popular is the 7(a) loan.
- Bridge Loan – It is the type of commercial loan that offers a short term first mortgage loan on commercial properties. It typically lasts for three years term or six months. The loan is mainly obtained by the borrowers when they are waiting for long-term financing or refinancing their present obligations.
A Flexi Loan Facility is available for the borrowers that allow them to withdraw only the required money from their pre-sanctioned loan. Borrowers can opt for repaying the loan amount any time before the termination of the loan term. It is the best commercial loan for business owners with little requirements and needs.
