COMMERCIAL LENDING: FAST FUNDS FOR YOUR BUSINESS

Whether you are experiencing a seasonal slump, or planning a potential business expansion, commercial loans can supply you with the funds your business needs to thrive and grow. Commercial loans are funds issued between a bank and a business to pay for day-to-day operations, cover one-time expenditures or to finance commercial real estate development projects. Moreover, businesses can apply for commercial mortgages towards the purchase of commercial land or real estate.

There are numerous loans available specifically designed for commercial development and real estate purposes including lot loans, SBA loans, lines of credit and property loans.

A commercial lot loan, most commonly referred to as a commercial real estate loan or commercial mortgage loan, provides enterprises with funds to purchase land or property for their business. The primary difference between residential real estate and commercial real estate is that a commercial property is not used for residential purposes and instead to generate income. The exception to this rule is owner-occupied real estate, where the owner uses the property as their primary home and rents other units out to tenants.

The same way that residential mortgage can be used towards the purchase of a home, a commercial mortgage can be used towards the purchase of a business property. However, there are some distinct qualities of a commercial mortgage that are important to note.

Unlike a residential mortgage that can be issued for up to 30 years, commercial property loans are usually only issued for periods of 5 to 10 years with an amortization period of up to 25 years. At the end of a commercial mortgage, you will likely have to pay the outstanding balance in a balloon payment.

Generally, lenders will require you to have at least 25% in equity in the property to be eligible for the mortgage. Some commercial mortgage lenders will even require a down payment of up to 40%, which is significantly more than the down payment required for a residential mortgage.

Not only do commercial property loan rates tend to be higher than residential mortgage rates, they rarely offer fixed interest rates. While occasionally commercial mortgages can be issued with a fixed interest rate, most carry variable interest rates, where the interest rate can change.

Commercial mortgages are secured commercial loans that require a form of asset-based collateral. Usually, the purchased property acts as collateral towards the loan. Just like with a residential mortgage, if you fail to repay the loan, the property can be seized by the lender.

In general, commercial property loans are harder to qualify for than residential mortgages and carry higher origination rates. Though providing collateral can generally lower interest rates, your individual rates will depend on your credit score, business health, and financial circumstances.

A construction loan for commercial property can grant you up to 90% of the total cost of construction. Construction loans require large down payments so that you can make interest-only payments during the period of construction. Lenders will often request a property appraisal to calculate the value of the intended project.

A commercial line of credit is an excellent way to get access to funds as you need them. A line of credit is a revolving short-term borrowing limit that can be used towards a variety of business-related purposes, including working capital, payroll, inventory, equipment and even construction and development. A line of credit is an unsecured commercial loan which means you don’t need to provide any collateral.

The SBA offers a number of commercial term loans (504, 7a, microloans) that can provide small businesses with working capital, cash flow, equipment, rent, payroll and other expenses. Aside from the SBA, there are a range of lenders that issue online commercial loans including credit card companies, credit unions and digital lending organizations.

It can take several weeks for a lender to process your application. However, once the loan is approved, the funding can be issued within a few days.

Preparing for the application can take a few months, so it is important to start as soon as possible. It may be in your interest to work with a loan consulting service to help you navigate the loan application process.

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