Skip to content

Commercial Real Estate Loan: What You Should Know

commercial real estate loanOne of the constants to starting or opening up any business is that you are going to be flooded with tons of numbers. You could be using a calculator or relying on good old fashioned pencils and paper to get the job done. However, you’re going to have numbers floating around in your head for quite some time. So, it can be beneficial to learn how to get a commercial real estate loan. 

There’s the budget to plan, equipment to buy, costs to oversee and only about a million other things. You’ll have to know all of it backward and forwards. If you’ve ever watched an episode of Shark Tank, you know all the investors/judges are constantly asking about the numbers. 

As a small business person, you have no doubt looked into getting a loan. There are many different types of loans out there. But, if you’re looking to open up a storefront, you’ll want to be checking out commercial real estate loans and how they can help you. Even though debt can be scary, it’s probably a necessary step for expanding your business.

Commercial Real Estate Loan: What You Should Know

Below, you’ll find steps on how to secure a commercial real estate loan. It can help you take another step forward with your business.

What is the Use of a Commercial Real Estate Loan

A commercial real estate loan can generally help you purchase a new property or set up a new facility like:

  • a warehouse,
  • a new storefront, or
  • an office space

You may be expanding your current office space by adding on a new branch or part of your building. It could also be a renovation to your existing area without adding on anything new (although having a company foosball room would be really cool).

Currently, the market for commercial real estate loans is quite favorable to the borrower despite having a rough 2018.

Commercial real estate loans are a bit different than regular loans. Instead of being tied to residential property, they are mortgage loans granted by liens on the commercial property.

Liens are:

  • the right that the property owner gives to a creditor
  • guarantees repayment of the commercial real estate loan

At the end of the day, it gives the commercial real estate lender protection in case of inability to pay the loan back.

Things You Should Know

When learning how to get a commercial real estate loan, the first thing to know if what lenders look for.

Lenders will make sure:

  • you own at least 51% of your space
  • must have about 30% down payment on the loan

The down-payment is a bit more than may be expected on residential property. While the requirement may vary from lender to lender, it tends to be the rule of thumb in the business.

Commercial real estate loans can typically be shorter. Where the average residential mortgage is 30 years, commercial real estate loans can come in 3 years with the longer term loans lasting a maximum of 20 years.

What Lenders Want

Remember when we mentioned knowing all your numbers up and down perfectly can help you learn how to get a commercial real estate loan? Hopefully, you keep comprehensive accounts of your finances over the years because the lenders are going to be pouring over them.

They’ll want to look at your business finances, personal finances (especially if you’re a very small business) and the property characteristics. Property characteristics are all the nitty-gritty details about the property itself. You’ll also need to collect your tax information, projected cash flow, credit reports, business license, business plan and more. Be sure to talk to your accountant to make sure you have everything ready to go.

Related: Online Lenders: The Millennial’s Choice

You’ve Got the Paperwork, Now What?

While you may be thinking you should head right down to the bank, there are other options for securing a commercial real estate loan. Banks, while they often provide the best rates, are usually slower and may only hand out loans for those with outstanding credit.

You can try a commercial lender, who are usually cheaper with closing costs and don’t have as many requirements for the loan. The downside is their higher interest rate and tendency to be a bit less flexible on the type of loans. They may ask you to take a balloon payment loan.

Balloon payment loans are a bit tricky, as they’re usually somewhere between five and seven years. You’ll make payments on the property like it is a 30-year mortgage, but the requirement is to make huge payments at the end of the loan. You’ll need to think long and hard before deciding to go this route.

If you’re still looking to secure a commercial real estate loan, there are also different types of SBA loans to take a look at. These are usually the distant third options for most people after going to banks and commercial lenders. After this, there are many other types of lenders such as hard-money lenders and conduit lenders.

Your best bet is to head to a bank or commercial lender before diving deeper down the list.

Are you ready to take your business to the next level and secure a commercial real estate loan?

Investing Money

AUTHOR LaTia Longuemire

My name is LaTia Longuemire. I enjoy writing, singing, and cooking in my spare time. My passion is helping others. At this stage in my lifetime, I'm primarily focused on my children. They are everything that keeps my world spinning.

Related posts