An Overview of The Commercial Loans for Real Estate

Commercial real estate is not for residential purpose but chiefly for business. Thus, every piece of real estate that is used for making money is referred to as commercial real estates. Just like any other properties and their mortgages, there are commercial loans for real estates in relation to their development and construction purposes. There are also many leading banks and independent lenders that provide commercial real estate loans that businessmen can take advantage of.

Commercial Loans

Some examples of such commercial real estate include the retail malls, office buildings, shopping centres, hotels and complexes.  Along with the banks and independent lenders, there are insurance companies, private investors and pension funds involved in commercial loans for real estate.

Few characteristics of Commercial Real Estate Loans that make them different from others.

  • Business entities: The commercial real estate loans are made for big corporations and leading developers as well as funds and  trustees. These entities are specially developed for owning commercial real estate. The owner of the entity guarantees the loan instead of the lender and in case of a loan  default; the property is the only way to recover the loan.
  • Higher Interest Rates: The commercial loans for real estate investors charge higher rates of interest. Moreover, there are additional fees, too, that gets added to the overall loan costs such as the survey fees, loan application fees, appraisal fees and more.
  • Restrictions on prepayment: The commercial loans for real estate often carry some restrictions and penalties on prepayment. Those penalties are based on any  current outstanding balance and are mainly designed to preserve the interest of the lender. Moreover, the borrower is not allowed to pay off the loan before a specified lockout period.

  • Loan Repayment terms: The terms and repayment schedules for current commercial loans for real estate differ  from other loan types. Typically the terms of loans range from in between five years to twenty  years, and there could be  much longer amortization period, too. The loan term and amortization period can impact the rate of the lender.

Different types of Commercial Real Estate Loans

When you start browsing, you will come across a variety of loans for commercial real estate. Some of the options include:

  • Traditional mortgage: When banks and lenders provide real estate loans for different commercial properties like industrial buildings, offices and retail centres.
  • Conduit Loans: These commercial mortgages are securitized and  sold to investors on a secondary market. These loans are different from the traditional commercial real estate loans in relation to the prepayment and loan administration.
  • Bridge Loans: The bridge loan, as the name implies, fills the gap for long-term financing and these are known to be as short term loans and carry higher interest rate. Some other commercial real estate loan types are the, soft and hard money loans, Small Business Administration’s flagship loan and 504 loans. The complication for qualifying for a bridge loan fully depends on the lender and the current market situation. After all, not two commercial properties are the same and there is not any one-size-fits-all approach that will meet all needs and unique situations. Sometimes, the lender can get  confused due to  the vast range of commercial real estate loans. Therefore it is always recommended to take advice of an expert and with a better understanding about the real estate loan types,  one can figure out the different types of commercial real estate loans that are currently available and make the right choices accordingly.


Final Words

The bottom line is that one should go for the best commercial loans for real estate only after evaluating several loans and lenders in the market. The loan’s collateral and the entity’s creditworthiness should be considered. Keep in mind several aspects like loan-to-value ratio, income tax returns and financial statements to never get jumbled up choosing the best one from the varieties of commercial real estate loans.

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