What You Need To Know About Commercial Real Estate Loans
A piece of property is considered commercial if it is designated to make money and you can get loans for this type of real estate if it is or will be at least fifty-one percent occupied by the business owner. Getting a loan for commercial real estate is much different from getting one for residential property, the costs are generally higher, and the approval process can be more involved. Before you start applying for loans, it is a good idea to know what some of the types, basic requirements and typical down payments are so you can see which options are the best fit.
There are several types of loans designed for commercial properties including traditional mortgages and various programs through the Small Business Administration. With traditional mortgages, the deal is made between the business owner and the lender and there is not a cap on funding. With an SBA loan program, the SBA backs part of the loan and places limits on amounts, uses or both. An SBA 7(a) loan will have a cap at $5 million and you will only be able to borrow up to ninety percent of the purchase price for the property. The other main SBA loan program for commercial property is the CDC/504 loan which partners you with a lender and a local Community Development Corporation where half the funding comes from the CDC, forty percent from a bank and the rest from you.
Most commercial real estate financing programs will consider the same factors such as personal credit score, net worth, liquidity, business experience and income. Working with a loan officer can help you determine which factors you need to work on as well as which programs you qualify for. These requirements will vary in specific numbers depending on the length of the term and the interest rates.
Typical Down Payments
Typically, you are looking at a range of down payments for commercial property purchases with traditional mortgages varying between fifteen and thirty-five percent and SBA programs having a more standardized ten to fifteen percent. This lets you see how much property you can afford now and through monthly payments to weigh those costs against potential profits.
Finding the right commercial real estate financing for your business can be tricky, especially when you are initially turned down for a traditional mortgage. There are other options and programs available to help and working with a loan officer can show you which ones you qualify for and where your finances need improvement for the best terms.