Understanding the Lay of the Land with Commercial Real Estate Loans

Whether you’re an expert in personal real estate loans or just getting started in the real estate market, there’s some essential differences to understand about commercial real estate. From commercial mortgages to complete renovations, many businesses are effectively utilize a commercial loan. Here’s the basic lay of the land when it comes to your funding options for your commercial loans.

First, the application and approval process for commercial real estate is far more stringent than residential property. This is mostly due to the fact that you’ll be earning money off this property. Commercial loans typically require repayment far sooner than your average residential mortgage. You’ll need to prove to the bank that your business investment is serious, and that you’ll be able to repay it in full in 5 to 20 years.

Consider the location, size, cost and profitability of your business before taking out a commercial loan. While you may need renovations or a new location, if the investment doesn’t bring enough additional income to pay off your loan, you could put your business in a risky financial situation.

Commercial real estate loans come in several different types. If you’re a small business owner, the most applicable commercial loans are a traditional commercial mortgage, a CDC/SBA 504 and a SBA 7(a). Understanding each of these loans is essential to choosing the right commercial investment.

Usually, you’ll only receive 65 to 85 percent of your loan-to-value comparison for your real estate. Be prepared for a down payment of 15 to 35 percent, as well as interest rates up to 6.75 percent. With a traditional commercial mortgage, you’ll typically need a credit score over 700.

An SBA 7(a) loan is available if you’ve been rejected from a traditional commercial mortgage. These government-backed loans are designed to help small business owners survive the first few years and financial hurdles. You’ll usually enjoy low interest rates, flexible loan amounts and a lower credit score than a traditional commercial loan.

Finally, a CDC/SBA 504 is targeted for real estate transactions only. You’ll need a reasonably high credit score, and will usually need to prove that you’re creating jobs for the local economy.

Consider each of these loans carefully before you choose which commercial real estate financing option is best for your business. Discover how commercial loans can give you the competitive edge you need to grow your business and overcome your financial hurdles.