Commercial Real-Estate Loan Basics

When working with commercial real estate, such as an office building or a rental property that you rent out to tenants, there are a lot of things that require you to have access to funds at a moment’s notice. For example, sometimes there are repairs that need to be performed suddenly and cannot be put off without causing a risk of worse problems down the line. For moments when you need extra cash in your budget for building, buying or repairing a commercial business, there is commercial real-estate financing.


Commercial loans are the most common way to get financing, and they are usually secured by liens on the property in the event that the loan is not paid back. Basically, the owner of the property is offering it up as collateral, much like someone does when they get a loan for a car or residential home. There are many lenders that you can go to in order to get this type of funding, and there are a few different kinds of loan options available for your needs, so it is important to know ahead of time what your best option is. This helps you decide how you want to go about getting commercial real-estate financing.


You can get your mortgage either in your individual name or in the name of your business. For commercial loans, the latter is more common, however if it is a newer business it may not have a financial history or credit score to speak of yet. In some cases, your personal credit score and history may be brought under scrutiny when lenders decide whether or not to take a risk on you. Due to the higher risks associated with lending to a company with no history, you may have to make higher payments or have other sorts of restrictions placed on you in order to receive the loan.


Commercial loans are different from residential ones in a number of ways. One of these ways is that prepayment is generally not allowed or at least is frowned upon. It is sometimes penalized, as well. This is because the lender wants to make sure they meet a certain yield for profit from loaning you the money, so they want the loan to reach its maturity date.


Before going out and getting commercial real-estate financing, it is important to know what you are getting into. Get familiar with the different options and which one will work best in your case, and talk to someone who can advise you on what to keep in mind before you proceed.


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