How to Get a Commercial Real Estate Loan-10 FAQ’s

When you are applying for your first commercial real estate loan, the process can be daunting. The best way to handle the situation is to go in with the right information, and that starts with an understanding of what the process entails and how to navigate it.

What is commercial real estate? The fact is, commercial property means any property held by a business for business purposes, including residential income properties like apartment buildings.

How is a commercial real estate loan structured? The traditional commercial loan is built much like a home mortgage, with similar but shorter terms. It is also amortizing and has a fixed rate. Non-traditional loans also exist though. The commercial debt market is more varied than the consumer mortgage market.

How does ownership work for commercial properties? Typically, entities own commercial real estate instead of individuals. Even where a sole individual owns the company that buys the property, tax and liability reasons often make it a better idea to structure the purchase so that a business entity holds it instead of an individual.

Why do principal investors have to guarantee many commercial loans? When a company does not have enough assets or established credit history to qualify for a loan, the bank often reviews the individual credit of the owner or partners who own it.

How short are repayment terms for commercial debt? It depends on the reason you are investing. If you are seeking a long-term commercial real estate loan for facilities for your company, you could potentially wind up with a 30-year loan. Most commercial loans are only five to 20 years, though.

What do loan-to-value ratios look like? Where residential mortgages tend to have LTVs between 80 and 95 percent, commercial loans tend to have LTVs between 65 and 80 percent.

How can an investor get better rates? Like residential mortgage rates, commercial rates are based on the size of your down payment and your credit. The better your personal and business credit, the better the rates you will be offered.

Will a lender need to see a business plan? There is a chance, since this is a business loan, that you will be asked to show a business plan. If your operation has a high enough income, though, this might not be necessary.

Should investors apply for more than one loan at a time? Absolutely. You can always turn down the offers you don’t want, and it helps speed up the process of finding a loan that works.

Where should investors look for loans? Traditional banks, hard money lenders, and even crowdfunding platforms all provide options for investors with a variety of financing needs.