Commercial real estate loans are ideal for business owners looking to buy property that can be rented out to generate income. They generally have lower interest rates than residential mortgages.
Getting this type of loan is usually more challenging than getting 아파트담보대출 traditional mortgages, because lenders are concerned about your company’s financial health and its debt-service coverage ratio (DSCR). This measure compares operating company cash flow with building company cash flow to determine if you can afford the mortgage.
Interest Rates
Interest rates on commercial real estate loans vary based on the type of property and your business. For example, you may be able to secure lower rates on a manufacturing facility than on an office building. Your loan-to-value ratio is also an important factor in determining your rate. Lenders typically expect a LTV of around 70% to 80%.
Typical commercial mortgages require more documentation and take longer to process than residential mortgages. They’re usually reserved for prime and near-prime borrowers with strong credit, high net worth and a solid track record of real estate investment.
If you have less-than-perfect credit, a weak financial history or a property that requires significant repairs, you’ll likely need to use alternative financing sources. Bridge loans offer fast financing for property deals that aren’t a fit for long-term financing. These short-term loans can help you compete with all-cash buyers and close a deal. They often come with high interest rates and must be paid back in full after they mature.
Down Payment
Commercial real estate loans require a down payment that’s based on the property’s value and other factors. For example, a lender may require 20% of the loan amount for a bank commercial mortgage or more for an SBA-guaranteed loan.
A commercial business line of credit is another type of financing option that lets businesses leverage their real estate as collateral. These loans work similarly to personal lines of credit, with a set credit limit that you can borrow from as needed.
A commercial real estate loan is typically offered to an entity like a corporation or development company, but can also be granted to individuals with excellent credit. A lender will place a lien on the property to secure the loan. This means if you fail to pay back your loan, the lender can take over the property. This is one reason why it’s important to determine what you need and want from your loan before applying.
Requirements
Like a residential mortgage, commercial real estate loans are often made to business entities such as corporations, limited liability companies or funds. However, individual business owners can borrow a commercial real estate loan too. Generally, lenders expect these entity holders to have good credit and be able to prove they can afford to repay the debt.
Lenders assess a company’s ability to repay its commercial real estate loan by examining three sets of requirements: the property, the borrower and its business. The business owner must provide extensive documentation, including financial statements from the past 3-5 years and an updated business plan. Lenders also consider a company’s debt-service coverage ratio (DSCR), which is calculated by dividing annual net operating income by its annual mortgage debt service, including interest and principal. A DSCR below 1.25 reveals negative cash flow and is usually not acceptable for most commercial loans.
If you don’t meet these minimum requirements, you may need to seek alternative commercial financing options, such as a bridge loan. These financing options are more flexible than traditional commercial mortgages and prioritize your creditworthiness instead of property value.
Options
Depending on the purpose of your commercial property loan, there are multiple sources you can obtain financing from. Banks are one common option, and their requirements can vary widely from lender to lender. For instance, some may require copious financial information while others, such as hard money lenders, are more concerned with the value of the property.
Other financing options include private finance companies, life insurance companies, and loans from government-sponsored entities like Fannie Mae and Freddie Mac. These typically feature long loan terms and low interest rates, making them suitable for high-quality properties in stable markets. Finally, there are also bridge loans that can help you compete with all-cash buyers. These credit facilities are typically advanced in stages based on project milestones and are repaid when the project is complete or when a permanent commercial real estate loan is taken out. These loans are usually used to acquire existing commercial buildings. However, they can also be used to build new construction.