Commercial property financing is a lien or mortgage on a commercial piece of land by a third party – called the lender. The term ‘commercial property financing’ may also include land trust, land leasing, partnership, cooperative arrangement, partnership interest, and the trust deed. There are various funding sources for Commercial Property Finance; however, there are specific guidelines followed by all lenders to provide an equal opportunity to provide financing to small and large businesses irrespective of their size.
Commercial lenders require a regular repayment plan for the funds received under the Commercial Mortgage Loans. The repayment schedule varies from lender to lender and the nature of the loan itself. There are two basic types of Commercial Mortgage Loans, i.e., fixed-rate and variable-rate Commercial Mortgage Loans. Commercial fixed-rate loans are based on the present value of the assets held as collateral, i.e., the greater the value of the assets, the higher will be the interest rate and vice versa.
A commercial business loan refers to a business loan available for buying a business rather than a single unit or a building. A business loan can be secured or unsecured. Commercial business loans can be obtained from one or more lenders at competitive rates. To get commercial property finance, the lender might ask you to propose your business plan and other supporting documents such as feasibility reports, return estimates, financial projections, and loan to value analysis.
A commercial real estate loan refers to the financing offered for purchasing commercial property. Lenders provide this facility for both residential and non-residential properties. Commercial lenders’ criteria include credit history, current income, and market value of the property. Commercial lenders also look into the source of finance and whether it is a preferred loan or line of credit. It is essential to clearly understand commercial property finance, business finance, and real estate finance before approaching lenders for the purpose.
It is imperative to understand how Commercial Property Finance works before approaching lenders for the purpose. Commercial property financing involves the purchase of a business and the subsequent improvement and maintenance of the same. While purchasing the property, the buyer may opt for financing, which gives him the flexibility to decide the working capital amount over some time. This flexible funding option can be used for the smooth functioning of the business during its initial phase.
Commercial loans come in two forms; secured and unsecured. A fast loan is taken for purchasing commercial real estate and pledging the real estate as collateral. In case of failure to repay the loan, the lender might seize the collateral. On the other hand, unsecured commercial financing means borrowing funds without securing any collateral. The lender may accept a borrower’s application for advance cash if he finds him a suitable candidate for the loan.
The repayment terms and conditions for unsecured loans come with comparatively higher interest rates. In the case of a secured loan, the interest rates are generally low compared to the rates charged for an unsecured loan. However, the repayment tenure too is shorter for an unsecured loan. The most crucial factor to consider while opting for Commercial Property Finance is the borrower’s credit history. Most lenders offer financing to those borrowers who have a good credit record in the market, along with an impressive credit score.