Before diving into the pool of commercial real estate financing, one must understand the basics of real estate financing to determine if it’s a good fit for them. Below are some of the crucial factors to know about the unique industry of real estate financing.
What Is a Commercial Real Estate Loan?
Commercial property is one that is used for business purposes and produces income. A good example of a commercial property is an office where business happens. To acquire a commercial property, one needs to guarantee the mortgage either through collateral or lien.
If the investor doesn’t meet the necessary repayment terms, the creditor can seize the property as he or she pleases. It is also noteworthy to point out that a commercial property loan can only be made out to a limited liability company or a corporation and not individuals.
How They Work
Commercial property loans are very different from residential ones. This is because commercial real estate loans are solely made out to finance income-producing properties. Additionally, creditors also require the investor to put up the property as collateral to secure their loan request. If the investor defaults on repayment, then the lender is at will to seize the property.
Another factor that lenders consider when financing commercial property loans is creditworthiness. In some residential loans, a person can get a loan even with a bad credit score. However, with commercial real estate loans, the creditor assesses the property’s potential to produce substantial incomes to determine whether or not to approve the loan application.
Can An Investor Secure A Commercial Property Loan With No Down Payment?
Contrary to the common opinion that commercial property loans are inaccessible, it is possible to acquire a commercial real estate loan without any money down. Financing options include taking advantage of various financing methods such as investing partnerships, purchasing money mortgages, and hard money lenders.
Sourcing the down payment from a hard money lender such as a bank involves assuring them that the property has attractive returns. The only downside to the hard lender financing option is that they usually have higher interest rates.