Financing commercial property
Finance for commercial property is given out for purchase of property for any type of business use. As long as the property is generating some kind of revenue for the business it is termed as commercial property.The commercial property finance can be used for obtaining motels, shopping centers, retail stores, office buildings, automobile dealerships, owner occupied buildings, manufacturing facilities, health care facilities etc.
Financing commercial property options
There are basically three options available for financing commercial property:
Secured commercial finance: This financing option is when the funds dispersed are not supposed to be applied to the property itself and the value developed in the property acts as security. Such a financing option is always welcome by the lenders as it involves low risk.
Redevelopment Finance: This type of finance is used to renovate or improve property with the purpose of increasing the value of the property.The use of the inspector valuation to establish future value subject to any essential repairs, and other elements of your planned scheme, is almost a requirement to establish whether a project is practical or not.
Bridging Finance: This type of finance is short-term but is costly and is used to fill the time period till a longer financing option is obtained. This type of finance is often used in property development market and usually can be arranged fast.
Amount of financing that can be obtained. When giving out financing commercial property loans the lenders offer a minimum loan amount of $250,000. Funds can be obtained either through private sources like banks, credit unions, private lenders or through government sources like the SBA (Small Business Administration).
The financing commercial property loan varies from a personal mortgage loan in the way that the interest charged on these loans is based on the commercial rates which basically means that the rates are higher than the residential mortgages. These rates can vary depending on the purpose of the commercial property and the profit that it would make.
Apart from this there is also a higher amount of down payment required by these finances. It is not uncommon if the lender would ask for up to 25-50% as down payment before giving out these loans. This is because commercial property is considered as a high-risk investment and the lender would like to be safe by all means.The terms of financing commercial property loans vary widely from 20 to 25 years.
What does the lender require?
But you would have to give details of the location and structural condition backed up by a report from an inspector. The inspector will determine the sales value as is, and this will form the basis of any offer for finance. You will be required to submit accounts for the last 3 years, and demonstrate the ability of your business to repay the loan before you are granted a mortgage. Financing commercial property is a big task and you should prepared with all the documents and details required by the lender.
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