Commercial Property Loan finances real estate properties used for business purposes. Large, reliable banks create most commercial property loans available today. In other words, if you get a commercial property loan from your hometown bank, the bank essentially gets that loan. Forever. And, they usually charge very high-interest rates.
On the other hand, commercial properties aren’t nearly as common as residential ones, making the loan application process more difficult for many borrowers. Fortunately, lenders have responded to the difficulty of the loan market by offering many more options for borrowers. There are now several different types of commercial property loans available. This wide-ranging selection gives borrowers plenty of options to choose from to find the right loan for their needs.
Probably one of the most traditional types of commercial property loan available is a fixed-rate loan. These loans usually come with fixed interest rates and terms—for example, the loan term maybe 30 years. The interest rate may be set at a specific percentage above prime. Also, some lenders limit the use of the first payment, known as the “first-payment principal,” to minimize the lender’s risk and make the commercial property loan more affordable.
Another option for borrowers seeking high-risk commercial real estate loans is interest-only commercial property loans. These loans require borrowers to pay interest only on the loan amount, after which they will be due the total amount of principal back. As a result, interest-only periods can vary widely between banks, resulting in highly variable interest rates. Interest-only periods are also limited to only two months in some cases. While this type of commercial property loan may be appealing initially because of the low interest rates, many banks require that borrowers prepay their interest payments during this period to qualify for a refinance or renewal of the loan.
While interest-only commercial property loans may offer attractive interest rates, they do not provide any flexibility. To enjoy any flexibility with commercial property loans, borrowers need to look to long-term financing plans. The two types of commercial real estate financing plans that are the most flexible are debt consolidation loans and commercial bridge loans. These financing programs are perfect for those who are looking to avoid commercial real estate loan mistakes.
Debt Consolidation Loans are created to provide long-term financing for commercial properties. Instead of making several small payments, borrowers combine their smaller monthly payments into one larger payment for easier financial management. Also, the amount of money being used in the refinancing is lower than what would be used in commercial real estate loans were taken out. This makes debt consolidation loans very effective for borrowers who own smaller buildings that do not generate the same income as more extensive properties.
Commercial bridge loans are another option available for borrowers who want to enjoy a more leisurely time refinancing their commercial loans. Unlike debt consolidation loans, the amount of money available through a commercial bridge loan is based on the value of the collateral securing the loan. If the borrower’s collateral is damaged by fire or a natural disaster, the lender will not be required to foreclose. This means that the borrower can continue to remain in the property as long as he wishes and continue to pay rent. As long as the property is used as collateral for the loan, the borrower will also keep all of the equity in the building.
When securing a good deal on commercial real estate loans, it often benefits the best to work with a local lender. Working with a local lender gives the borrower more options and allows the lender to look at your circumstances and the risks of lending you money. Sometimes lenders will take into account the location of your business when determining the loan amount. However, even if the lender cannot be located within your city, they may still be able to offer you a loan at a good deal.